Colorado Department of Regulatory Agencies Office of Policy Research by cnolynne

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									  Colorado Department of Regulatory Agencies
Office of Policy, Research and Regulatory Reform




     Colorado Motor Vehicle Dealer
     Board




                  October 12, 2006
                                  STATE OF COLORADO
DEPARTMENT OF REGULATORY AGENCIES              1560 Broadway, Suite 1550
Office of the Executive Director               Denver, CO 80202
Tambor Williams                                Phone: (303) 894-7855
Executive Director                             Fax: (303) 894-7885
                                               V/TDD: (303) 894-7880


                                                                                    Bill Owens
                                                                                    Governor



October 12, 2006


Members of the Colorado General Assembly
c/o the Office of Legislative Legal Services
State Capitol Building
Denver, Colorado 80203

Dear Members of the General Assembly:

The Colorado Department of Regulatory Agencies has completed the evaluation of the Colorado
Motor Vehicle Dealer Board (Board). I am pleased to submit this written report, which will be the
basis for my office's oral testimony before the 2007 legislative committee of reference. The
report is submitted pursuant to section 24-34-104(8)(a), of the Colorado Revised Statutes
(C.R.S.), which states in part:

   The department of regulatory agencies shall conduct an analysis of the performance of
   each division, board or agency or each function scheduled for termination under this
   section...

   The department of regulatory agencies shall submit a report and supporting materials to
   the office of legislative legal services no later than October 15 of the year preceding the
   date established for termination….

The report discusses the question of whether there is a need for the regulation provided under
Part 1 of Article 6 of Title 12, C.R.S. The report also discusses the effectiveness of the Board
and staff in carrying out the intent of the statutes and makes recommendations for statutory and
administrative changes in the event this regulatory program is continued by the General
Assembly.

Sincerely,




Tambor Williams
Executive Director
                                                 Table of Contents

Executive Summary ..............................................................................................................i

Background ..........................................................................................................................1

The Sunset Process .................................................................................................................1
Methodology..........................................................................................................................1
Profile of the Profession .........................................................................................................2
History of Regulation ..............................................................................................................3

Legal Framework..................................................................................................................6

Related Statutes...................................................................................................................11
Regulations ...........................................................................................................................11

Program Description and Administration ........................................................................12

Responsibilities ......................................................................................................................12
Agency Fiscal Information – Auto Industry Division .........................................................14
Licensing................................................................................................................................15
Examinations.........................................................................................................................21
Compliance and Investigations.........................................................................................23
Complaints/Disciplinary Actions ........................................................................................26
License Denials .....................................................................................................................28
Disciplinary Actions ..............................................................................................................29

Analysis and Recommendations ......................................................................................34

Recommendation 1 – Continue the Colorado Motor Vehicle Dealer Board for five
years, until 2012. ...................................................................................................................34
Recommendation 2 – Increase the surety bond required of new and used motor
vehicle dealers to $50,000. .................................................................................................35
Recommendation 3 – Delete the $5,000-surety bond required for new and used
motor vehicle salespersons.................................................................................................39
Recommendation 4 - Modify the composition of the Board by replacing one new
motor vehicle dealer member and one used motor vehicle dealer member with a
Colorado county clerk and an individual employed as an executive in the financial
lending sector.......................................................................................................................40
Recommendation 5 - Require the Board to utilize administrative law judges to
conduct motor vehicle dealer licensure and disciplinary hearings, and Department
of Revenue hearing officers to conduct salesperson licensure and disciplinary
hearings.................................................................................................................................42
Recommendation 6 - Require that the Board prepare, and all licensed dealers in
Colorado include in the sales contract packet, a brochure providing consumers
with information on how to contact the Board, and the extent of the Board’s
authority. ...............................................................................................................................47
Recommendation 7 – Authorize the Board to deactivate a dealer license by mail, if
a licensee fails to maintain a required bond. ..................................................................48
Recommendation 8 – Repeal the requirement that dealers and salespersons pass
the current mastery exams as a condition of licensure..................................................48
Recommendation 9 – Modify the statutory requirements of a licensed wholesale
motor vehicle auction dealer to permit a licensee to provide auction sevices of
government owned vehicles to the public......................................................................49
Recommendation 10 – The AID and the Board should develop and utilize a viable
and consistent set of compliance and disciplinary standards by January 1, 2008. ...50
Recommendation 11 – Clarify section 12-6-104(3)(a), C.R.S., which inadvertently
authorizes the Board to repeal reasonable rules and regulations. ...............................51
Administrative Recommendation 1 – Maintain computerized and accurate records
of all Board actions, licensing and bond activity, statistics, and other information
and data...............................................................................................................................52

Appendix A – Sunset Statutory Evaluation Criteria ........................................................54

Appendix B – Complaint Process .....................................................................................55

Appendix C – Investigation Process ................................................................................56

Appendix D – Adjudication Process.................................................................................57
                                                                                    Department of Regulatory Agencies
2006 Sunset Review
Colorado Motor Vehicle Dealer Board                                                 Bill Owens
                                                                                    Governor                                                         IO
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Executive Summary                                                                   Tambor Williams
                                                                                    Executive Director


Quick Facts                                                   Key Recommendations
What is Regulated? New and used motor vehicle                 Continue the Board until 2012.
dealers and salespersons, motor vehicle wholesalers,          The licensing and oversight of motor vehicle
and wholesale motor vehicle auction dealers.                  dealers,    salespersons,       wholesalers,   and
                                                              wholesale motor vehicle auction dealers benefits
Who is Regulated? In fiscal year 05-06 there were             the citizens of Colorado. The intent of the motor
approximately 19,000 licenses issued and renewed by           vehicle statutes is to protect the consumer and to
the Board:                                                    create a feeling of confidence and trust in the
                                                              dealer by the public. The complicated nature of
Motor vehicle salespersons: 16,459                            the industry, the potential for consumer harm, and
New motor vehicle dealers: 677                                the actual consumer harm substantiate the need
Used motor vehicle dealers: 1,525                             for continuing oversight of the industry.
Motor vehicle wholesalers/wholesale        motor   vehicle    Consequently, as an essential component of the
auction dealers: 7                                            existing regulatory scheme, the Board should be
                                                              continued until 2012.
How is it Regulated? The Board is a Type II board
located in the Auto Industry Division of the Department of    Increase the surety bond required of
Revenue. In practice, the Board licenses motor vehicle
                                                              motor vehicle dealers to $50,000.
dealers, salespersons, and motor vehicle wholesalers
                                                              Every Colorado new and used motor vehicle
and wholesale motor vehicle auction dealers. This
                                                              dealer is currently required to maintain a $30,000-
involves processing and evaluating applications from
                                                              surety bond, which is available for consumer
prospective licensees, enforcing minimum standards of
                                                              reimbursement for loss or damage as a result of a
sales and practice as defined by law, and disciplining
                                                              dealer’s     misrepresentations      or    fraudulent
those in violation of the law.
                                                              activities. The cost of this surety bond is generally
What Does it Cost? The fiscal year 04-05 Auto                 one-percent of the bond amount (currently $300).
Industry Division expenditures, including oversight and       An important factor relating to this surety bond is
support of this program were $1,377,301, and there were       the escalating price of motor vehicles. In many
21.2 FTE associated with this program. The direct costs       instances, the amount of damages or loss to the
associated with the Board’s meeting schedule in fiscal        consumer has exceeded the current surety bond
year 04-05 was $5,936.                                        amount of $30,000. The financial protection
                                                              provided to the public is enhanced with a larger
In fiscal year 05-06, license fees for motor vehicle          bond requirement.
dealers, wholesalers, and wholesale motor vehicle
auction dealers was $325 for initial licensure, and $270      Alter the composition of the Board.
for renewal. Licensure fees for salespersons consisted of     The general purpose of including industry
$75 for an initial license, and $55 for license renewal.      members on the Board is to include a degree of
                                                              industry-related knowledge and expertise to assist
What Disciplinary Activity is There? During the               the Board in the performance of its statutory
five-year period of fiscal year 01-02 to fiscal year 05-06,   functions. Although it is critical for the Board
the Board’s disciplinary proceedings consisted of:            composition to contain individuals with an
                                                              understanding of the industry, and share that
Revocations                       77                          necessary expertise, it is also important to have
Suspensions                       41                          balanced representation on the Board of
Probation                        152                          consumers and other professionals that interact
Fines                             72                          and transact business with the motor vehicle
Other                             70                          industry. The existing composition of the Board
                                                              should be modified to more accurately reflect the
Where Do I Get the Full Report? The full sunset               expertise necessary to evaluate and resolve
review can be found on the internet at:                       complaints and disciplinary matters. The Board
http://www.dora.state.co.us/opr/oprpublications.htm           membership should be modified by replacing one
                                                              new and one used motor vehicle dealer with a
                                                              Colorado county clerk, and an individual
                                                              employed in the motor vehicle financing sector.
                                                          i
Key Recommendations Continued

Require the Board to utilize administrative law judges and hearing officers in disciplinary
hearings.
Individual Board members cite their heavy caseload for the Board’s inability to allocate time to address public
policy and regulatory issues. The Board currently spends the majority of its meetings hearing testimony in
appeals of license denial matters and routine disciplinary cases. The Board would be the recipient of numerous
benefits by utilizing the services of judges and professional hearing officers in the disciplinary hearing process.
In addition to giving the Board time to address important issues, other benefits include enhanced due process
protection, a reduction of conflicts, consistency of decisions, and fewer appeals.




       Major Contacts Made In Researching the 2006 Sunset Review of the Board
                                   Colorado Automobile Dealers Association
                             Colorado Independent Automobile Dealers Association
                                   National Automobile Dealers Association
                             National Independent Automobile Dealers Association
                             American Association of Motor Vehicle Administrators
                                             Denver Auto Auction
                                     Board and Auto Industry Division staff




                                        What is a Sunset Review?
A sunset review is a periodic assessment of state boards, programs, and functions to determine
whether or not they should be continued by the legislature. Sunset reviews focus on creating the
least restrictive form of regulation consistent with the public interest.           In formulating
recommendations, sunset reviews consider the public's right to consistent, high quality professional
or occupational services and the rights of businesses to exist and thrive in a highly competitive
market, free from unfair, costly or unnecessary regulation.

                                    Sunset Reviews are Prepared By:
                              Colorado Department of Regulatory Agencies
                            Office of Policy, Research and Regulatory Reform
                                       1560 Broadway, Suite 1550
                                             Denver, CO 80202
                                         www.dora.state.co.us/opr

                                                        ii
Background

       The Sunset Process

       The regulatory functions of the Colorado Motor Vehicle Dealer Board (Board)
       in accordance with Part 1 of Article 6 of Title 12, Colorado Revised Statutes
       (C.R.S.), shall terminate on July 1, 2007, unless continued by the General
       Assembly. During the year prior to this date, it is the duty of the Department of
       Regulatory Agencies (DORA) to conduct an analysis and evaluation of the
       Board pursuant to section 24-34-104, C.R.S.

       The purpose of this review is to determine whether the Board should be
       continued for the protection of the public and to evaluate the performance of
       the Board and the Board’s staff. During this review, the Board must
       demonstrate that there is still a need for the Board and that the regulation is
       the least restrictive regulation consistent with the public interest. DORA’s
       findings and recommendations are submitted via this report to the legislative
       committee of reference of the Colorado General Assembly. Statutory criteria
       used in sunset reviews may be found in Appendix A on page 54.

       This report does not contain a review of the licensing functions of the
       Executive Director of the Department of Revenue related to motor vehicle
       manufacturers and related functions. These licensing and disciplinary
       functions, contained in Part 2 of Article 6 of Title 12, C.R.S., were the subject
       of a sunset report in 2002 pursuant to the General Assembly separating these
       functions from the Board’s sunset review.



       Methodology

       As part of this review, DORA staff attended numerous Board meetings,
       interviewed the Department of Revenue (DOR), Auto Industry Division (AID)
       staff, reviewed Board and AID records and minutes including complaint and
       disciplinary actions, interviewed officials with state and national professional
       associations, interviewed members of the industry and public, reviewed
       Colorado statutes and Board rules and regulations, and reviewed the laws of
       other states.




                                           1
Profile of the Profession

The motor vehicle industry in Colorado is a vital, thriving industry that has
generated significant revenue for Colorado and its citizens. The following
statistics, generated by the Colorado Automobile Dealers Association (CADA),
demonstrate and highlight the importance of the motor vehicle industry to
Colorado’s economy.1

    •    In 2004, the automotive retailing industry generated a total of over
         33,300 jobs in Colorado.
    •    In 2004, state residents earned over $1.67 billion as a result of
         automobile dealership operations in Colorado.
    •    The average new motor vehicle dealership had over $4 million in payroll
         expense during 2004.
    •    Automobile dealers (through taxes collected or paid) generated more
         than $465 million in revenue for the state and local governments in
         2004.
    •    Sales at new vehicle dealerships in Colorado exceeded $12.7 billion in
         2004.
    •    Colorado new vehicle dealerships sold over 461,000 new and used
         vehicles during 2004.
    •    Total annual new vehicle retail sales in Colorado exceeded 190,000
         units during each of the six years from 1999 through 2004.

The Board is statutorily responsible for administering motor vehicle dealer
licensing laws, and promulgating rules and regulations relating to the licensure
of motor vehicle dealers, wholesalers, salespersons, and wholesale motor
vehicle auction dealers. The Board has the statutory authority to investigate
complaints against new and used motor vehicle dealers, salespersons,
wholesalers, and wholesale motor vehicle auction dealers, and to impose
sanctions and discipline against licensees who violate state statutes and
Board rules and regulations.

The Board meets this responsibility through the assistance of the compliance,
licensing, and investigations sections of the AID. The AID acts as the
administrative arm for the Board in the licensing and regulation of new motor
vehicle dealers, used motor vehicle dealers, wholesalers, wholesale motor
vehicle auction dealers, and salespersons.




1
 The Economic Impact of Franchised New Vehicle Dealers on the Colorado Economy, 2005, p. 3,
available at http://cadaonline.org/shared/IndustryStatistics/default.asp, accessed March 21, 2006 and
August 14, 2006.


                                               2
Activities of the AID include processing of license applications and fees,
administering written examinations to applicants, providing educational
services to licensees and the public, conducting compliance audits, working
with consumers and dealers to resolve complaints, and investigating motor
vehicle and criminal complaints.

The Investigations Section of the AID also provides training seminars to the
public and industry in an attempt to prevent title, odometer, and salvage fraud
and provides training to licensees in proper title assignments, proper
completion of required documents and advertising.

Generally, the nine-member Board meets twice monthly to make policy
decisions, consider licensing matters, review complaints, hold administrative
disciplinary hearings, and take disciplinary action against licensees when
appropriate.

The Board members are appointed by the Governor to serve three-year terms.
The Board is currently comprised of three new motor vehicle dealers; three
used motor vehicle dealers, and three public members.



History of Regulation

The Colorado Motor Vehicle Dealer Advisory Board (Advisory Board) was
originally created in 1945 as a five-member advisory board made up
exclusively of automobile dealers. Two members of the Advisory Board were
appointed by the Governor and three by the Executive Director of the DOR
(Executive Director).

The Advisory Board was required to meet quarterly and advise the Executive
Director on issues related to motor vehicle sales. The Executive Director
conducted all disciplinary hearings. Advisory Board members were included at
the discretion of the Executive Director. The Executive Director could delegate
hearing functions to the Advisory Board. All licensing and disciplinary functions
were the responsibility of the Executive Director. The Executive Director could
request an opinion from the Advisory Board prior to promulgating a regulation,
at his or her discretion.

In 1953, the Executive Director was given authority to issue fines of between
$75 and $500 for any violation of the statute or regulations. Violators could
also be subject to up to six months in the county jail. The Advisory Board
function was reduced to meeting only when called by the Executive Director,
and only to review the specific matters referred to it by the Executive Director.




                                    3
In 1971, House Bill 71-1378 expanded the duties of the Advisory Board. This
bill created the Motor Vehicle Dealer Licensing Board (Board).

The Board’s membership included representation from four new motor vehicle
dealers, three used motor vehicle dealers and two public members. The
licensing and disciplinary functions for dealers and salespeople were shifted
from the Executive Director to the Board.

The nine-member Board had regulatory responsibility for retail sales of motor
vehicles including licensing of new and used motor vehicle dealers and
salespeople. The Executive Director retained licensing authority over motor
vehicle manufacturers, distributors and their representatives.

In 1983, the first sunset review of the program was conducted. The report
recommended continuing the regulation of motor vehicle dealers with a greater
emphasis on consumer protection issues. A bill continuing the functions of the
Board until 1992 was passed by the General Assembly and became law.

The 1991 sunset review criticized the enforcement record of the Board.
Recommendations implemented by the General Assembly as a result of the
1991 sunset review included:

       •   Increased the public representation on the Board;
       •   Authorized the Board to implement fines of up to $10,000 for violations;
       •   Deregulated non-wholesale auctioneers; and
       •   Revised the examination process.

An administrative recommendation made in the sunset report resulted in the
reorganization of the Division of Motor Vehicles that separated the supervision
of complaint investigation functions from the administrative hearing process.

In 1998, mandatory license disqualifiers were enacted by the General
Assembly. The disqualifiers generally consisted of denying licensure to any
applicant with a felony conviction under Title 18, Articles 3, 4, and 5, C.R.S.,
within 10 years from the date of conviction.2

The Department of Revenue’s Dealer Service Section (DSS) was reorganized,
and became the Auto Industry Division in 1999.

In 2000, the General Assembly enacted Senate Bill 00-17, which allowed
motor vehicle dealers to maintain books and records at locations other than
their principal place of business.



2
    § 12-6-118(7)(a)(I), C.R.S.


                                       4
Senate Bill 02-05, enacted by the General Assembly in 2002, allowed AID
investigators to issue misdemeanor summons for unlicensed sales activity,
and classified investigators as Level II Peace Officers. In 2002, the AID also
implemented on-line access to motor vehicle dealer information for county
clerks, bond companies, and wholesale motor vehicle auction dealers.

The AID developed specialized training seminars in 2003, in the areas of
motor vehicle advertising, title and odometer fraud, and document
requirements for motor vehicle sales transactions.

In 2004, pursuant to the General Assembly enacting House Bill 04-1053, the
Board was authorized to discipline a licensee if said licensee failed to give
timely notice to a prospective buyer regarding the acceptance or rejection of a
motor vehicle purchase order agreement on a finance or consignment sale. In
2004, the AID additionally implemented a plan to stagger the issuance of
license renewals over 12 months. This project distributes the AID’s workload
throughout the year, instead of dealing with the majority of license renewals
during a one-month period.




                                   5
Legal Framework
        The regulation of the sale of motor vehicles, and the entities and individuals
        that sell them, is found in Article 6 of Title 12 of the Colorado Revised Statutes
        (C.R.S.). The legislative declaration indicates reasons for the regulation of
        motor vehicle dealers.3 These reasons include: the public expects that a
        dealer will remain in business to provide service for purchased motor vehicles;
        to promote highway safety, consumer protection, and to promote consumer
        education. The declaration also indicates that the sale of motor vehicles by
        unlicensed dealers, or by licensed dealers or salespersons who have
        demonstrated unfitness, should be prevented.

        Section 12-6-102, C.R.S., provides definitions for terms to be used in the
        regulation of motor vehicle sales. Key defined terms include: “Consumer,”
        “Distributor,” “Motor vehicle,” “Motor vehicle dealer,” “Motor vehicle
        salesperson,” “Used motor vehicle dealer,” and “Wholesaler.”

        Farm tractors and other machines and tools used in the production, harvesting
        and care of farm products are not considered motor vehicles.4 Exempt from
        the definition of motor vehicle dealer, or used motor vehicle dealer are:

                (a)    Receivers, trustees, administrators, executors, guardians, or
                       other persons appointed by or acting under the judgment or
                       order of any court;5
                (b)    Public officers while performing their official duties;6
                (c)    Employees of persons enumerated in the definition of "motor
                       vehicle dealer" when engaged in the specific performance of
                       their duties as such employees;7
                (d)    A wholesaler or anyone selling motor vehicles solely to
                       wholesalers;8
                (e)    Mortgagees or secured parties as to sales in any one year of
                       not more than 12 motor vehicles constituting collateral on a
                       mortgage or security agreement, if such mortgagees or
                       secured parties shall not realize for their own account from
                       such sales any moneys in excess of the outstanding balance
                       secured by such mortgage or security agreement, plus costs
                       of collection;9


        3
          § 12-6-101(1), C.R.S.
        4
          § 12-6-102(12), C.R.S.
        5
          §§ 12-6-102(13)(a) and (17)(a), C.R.S.
        6
          §§ 12-6-102(13)(b) and (17)(b), C.R.S.
        7
          §§ 12-6-102(13)(c) and (17)(c), C.R.S.
        8
          §§ 12-6-102(13)(d) and (17)(d), C.R.S.
        9
          § 12-6-102(17)(e), C.R.S.


                                                   6
         (f)    Any person who only sells or exchanges no more than four
                motor vehicles which are collectors' items pursuant to section
                42-3-219, C.R.S., or pursuant to Article 12 of Title 42,
                C.R.S.;10
         (g)    A motor vehicle auctioneer;11 and
         (h)    An operator, as defined in section 42-4-2102(5), C.R.S., who
                sells a motor vehicle pursuant to section 42-4-2104, C.R.S.12

Section 103 creates the Motor Vehicle Dealer Board (Board). The Board
consists of nine members, appointed by the Governor, serving three-year
terms.13 The membership of the Board is equally divided statutorily between
new motor vehicle dealers, used motor vehicle dealers and consumer
members. Board members serve without compensation but are reimbursed for
actual and necessary expenses while engaged in official duties.14

The Board is required by section 104 to annually elect a president, first vice-
president and a second vice-president. The Board establishes its own meeting
schedule, and a majority of the Board constitutes a quorum at any meeting or
hearing.

The Board has broad regulatory responsibilities to promulgate, amend, and
repeal rules and regulations relating to those functions the Board is mandated
to fulfill, including the administration, enforcement, issuance, and denial of
licenses to motor vehicle dealers, motor vehicle salespeople, used motor
vehicle dealers, wholesale motor vehicle auction dealers, and wholesalers,
and the laws of the State of Colorado as it deems necessary.15

The Board has the statutory authority to delegate to the Board’s Executive
Secretary the authority to execute all actions within the power of the Board,
including the issuance of licenses pursuant to the rules and regulations
adopted by the Board.16

The Board may issue subpoenas and conduct investigations through the
Executive Director of the Department of Revenue (Executive Director), on its
own motion, or upon a sworn complaint by any person, of any suspected
violation of the licensing statute or the regulations promulgated by the Board.
The Board has the authority to resolve disputes before requesting an
investigation or hearing through its own action or by direction to the Executive
Director.17

10
   § 12-6-102(17)(f), C.R.S.
11
   §§ 12-6-102(13)(f) and (17)(g), C.R.S.
12
   § 12-6-102(17)(h), C.R.S.
13
   §§ 12-6-103(1) and (2), C.R.S.
14
   § 12-6-103(3), C.R.S.
15
   § 12-6-104(3), C.R.S.
16
   § 12-6-104(3)(a.5), C.R.S.
17
   § 12-6-104(3)(f)(I), C.R.S.


                                            7
Upon a finding of probable cause, the Board may conduct a hearing in
accordance with the Administrative Procedure Act (APA). The Board may
conduct hearings, delegate hearings to an administrative law judge (ALJ), or
the Board may designate one of the Board’s members as a hearing officer to
conduct a hearing in accordance with the APA.18 The Board is authorized to
summarily issue cease and desist orders, if such orders are followed by
compliance with notice and hearing requirements.19 After due notice and
hearing, the Board may revoke, suspend, or order the Executive Director to
issue or reinstate any license issued by the Board.20

The Board, or an ALJ designated by the Board, may, after a hearing in
accordance with the APA, deny, suspend, or revoke any license issued by the
Board. The Board may impose fines of up to $10,000 for each violation of the
statute or regulations by a licensee.21 The Board is required to promulgate
guidelines to ensure that administrative penalties are equitable and relative to
the seriousness of the offense.22

The Board must prescribe forms to be utilized in the application process, and
may request information of said applicants regarding their fitness to become
licensed, as the Board considers appropriate and necessary. The statute
defines the minimum standards for license applications. However, the Board
may, by regulation, develop additional requirements.23

The Board is to conduct an examination to test the competency of applicants
for various dealer and salesperson licenses and to develop forms to be used
as sales contracts for motor vehicles.24 The statute defines the minimum
standards for motor vehicle sales and lease forms. The Board may, by
regulation, develop additional requirements. It is the intent of the statute to
ensure that all sales documents used by dealers clearly disclose price and
terms to the consumer, including financing approval and conflicting oral
representations.25




18
   § 12-6-104(3)(f)(II), C.R.S.
19
   § 12-6-104(3)(f.5), C.R.S.
20
   § 12-6-104(3)(e)(I), C.R.S.
21
   § 12-6-104(3)(m)(I)(A), C.R.S.
22
   § 12-6-104(3)(n), C.R.S.
23
   § 12-6-104(3)(g), C.R.S.
24
   § 12-6-104(j)(I), C.R.S.
25
   § 12-6-104(k)(I), C.R.S.


                                    8
The statute defines the various classes of licenses and authorizes the
activities permitted under specific licenses.26 The Board and Executive
Director are required to issue licenses on a form to be prescribed by the
Board, and licensees are required to display licenses at the licensee’s place of
business.27 The Board and Executive Director are required by section 12-6-
110, C.R.S., to establish fees for each class of license. Fees are to be set at a
level that covers the direct and indirect costs of administering the program. All
fees are paid to the state treasurer and are credited to the Auto Dealers
License Fund (License Fund) established in section 12-6-123, C.R.S. The
License Fund is subject to the normal appropriations process.

Motor vehicle dealers, wholesalers, wholesale motor vehicle auction dealers
and used motor vehicle dealers are required to file with the Board proof of a
corporate surety bond issued by a company authorized in the state in the
amount of $30,000.28 The purpose of the bond is to reimburse retail
consumers for damages suffered because of fraud, misrepresentation or
violations of the motor vehicle statute or regulations.29 Licensees who sell only
small utility trailers are required to carry a $5,000-bond for the same
purpose.30 Both new and used motor vehicle salespersons are required to
obtain a bond in the amount of $5,000.31

All bonds must be renewed annually. This may be accomplished by the
issuance of a continuation certificate by the surety.32 These surety bonds can
only be released after a finding of fraud by the Board or a court of competent
jurisdiction.33 All corporate surety companies are required by section 12-6-
112.7, C.R.S., to provide notice to the Board and Executive Director within 30
days after a claim is honored against a bond.

All applicable fees must be paid at the time the application is filed with either
the Board or the Executive Director. Applicants licensed by the Board are
required to appoint the Executive Secretary to the Board as their agent for
service of process for claims arising from any acts related to licensure
violations.34




26
   § 12-6-108, C.R.S.
27
   § 12-6-109, C.R.S.
28
   §§ 12-6-111(1) and (2), C.R.S.
29
   § 12-6-111(2)(a), C.R.S.
30
   § 12-6-111(2)(a), C.R.S.
31
   § 12-6-112(1), C.R.S.
32
   §§ 12-6-111(3) and 12-6-112(3), C.R.S.
33
   §§ 12-6-111(2)(b) and 12-6-112(2), C.R.S.
34
   § 12-6-115(6), C.R.S.


                                               9
New motor vehicle dealers and used motor vehicle dealers are required to
obtain and maintain a principle place of business that meets the guidelines
outlined in sections 12-6-116 and -117, C.R.S. Dealers that change their
address or lines of vehicles are required to notify the Board. A dealer losing a
new car franchise for any reason may be licensed as a used motor vehicle
dealer at the discretion of the Board. All dealers are required to confiscate and
return to the Board the salesperson license of any salesperson that changes a
place of employment or terminates employment for any reason.

Grounds for denial, suspension, or revocation of all licenses issued by the
Board are detailed in section 12-6-118, C.R.S. Material misstatements on the
license application, willful failure to comply with the statute, coercion, engaging
in illegal business practices and willful misrepresentation are among the
grounds for disciplinary actions. All disciplinary actions are conducted
according to the APA and are considered the final administrative action.35
Under section 12-6-119, C.R.S., the Colorado Court of Appeals has initial
jurisdiction to review all final actions of the Board that are subject to judicial
review.

Pursuant to section 12-6-121, C.R.S., violations of the statute are considered
Class 1 misdemeanors except for unlicensed activities, which are considered
Class 3 misdemeanors. Fines collected for unlicensed activity are awarded to
the law enforcement agency investigating and issuing the citation for the
violation, under the provisions of section 12-6-121.5, C.R.S.

Failure to honor a draft or check in transactions between the various entities
licensed by the Board is an offense against the licensee that could result in a
disciplinary action.36 Failure to honor a draft or check, which results in a loss to
a third party, is a misdemeanor resulting in a $2,500-fine.37 Any person
suffering a loss or damage because of fraud by a dealer or a salesperson
acting for the dealer has a right of action against the bonds of the dealer
and/or salesperson.38

In order to eliminate the impression that a vehicle is being offered for sale by a
private party, all dealer advertisements must disclose that the vehicle offered
for sale is being offered by a dealer.39 The Board has promulgated numerous
additional advertising regulations.




35
   § 12-6-104(3)(m)(II), C.R.S.
36
   § 12-6-118(3)(e), C.R.S.
37
   § 12-6-121.6(2), C.R.S.
38
   §§ 12-6-111(2)(b) and 12-6-112(2), C.R.S.
39
   § 12-6-125, C.R.S.


                                               10
Related Statutes

Provisions of the Colorado Certificate of Title Act, contained in Article 6 of Title
42, C.R.S., and other laws also contained in Title 42, C.R.S., additionally
regulate motor vehicle dealers and motor vehicles. In addition to specific
advertising provisions contained in the statute creating the Board, all
advertising by dealers must comply with state and federal truth in advertising
laws. Most dealerships offer financing for vehicles; all credit transactions are
subject to state and federal truth in lending and fair credit requirements. The
Federal Trade Commission, National Highway Safety Administration, and the
Internal Revenue Service all have specific regulatory programs impacting
motor vehicle dealerships.

Section 6-1-708, C.R.S., provides consumer protection relating to the sale of a
new or used motor vehicle. Specifically, the Colorado Consumer Protection
Act, prevents dealers from selling or leasing a trade-in vehicle until the
consumer credit financing has been approved, and requires that a dealer
disclose in writing when a vehicle is a salvage vehicle.



Regulations

The AID produces a booklet for licensees containing the regulations
promulgated by the Board, as well as excerpts from the statute. This booklet is
available to consumers and licensees upon request to the Auto Industry
Division. The booklet was last updated in 2004.




                                     11
Program Description and Administration
        Responsibilities

        A primary function of the Colorado Motor Vehicle Dealer Board (Board), as
        delineated in the section of the act setting forth the Board’s powers and duties,
        is:

                   To promulgate, amend, and repeal reasonable rules and
                   regulations relating to those functions the [B]oard is mandated
                   to carry out pursuant to this [P]art 1, including the
                   administration, enforcement, issuance, and denial of licenses to
                   motor vehicle dealers, motor vehicle salespeople, used motor
                   vehicle dealers, wholesale motor vehicle auction dealers, and
                   wholesalers, and the laws of the [S]tate of [C]olorado as it
                   deems necessary.40

        The Board is created in section 12-6-103, Colorado Revised Statues (C.R.S.).
        The Board’s authority is derived from section 12-6-104, C.R.S., and from the
        Colorado Administrative Procedure Act. The Board is an entity created by
        statute; therefore the Boards powers are limited to those expressly conferred
        by the legislature. The Board’s express powers are to administer, enforce,
        issue, and deny licenses to motor vehicle dealers and salespersons (new and
        used), in addition to wholesale motor vehicle auction dealers and wholesalers.
        The Board is also authorized to issue a temporary license to any person who
        submits a completed application. An applicant may operate under such a
        license for no more than 120 days while the Board investigates and
        determines all facts relevant to the background and qualifications as set forth
        in the application. This temporary license is terminated when the applicant’s
        license is granted or denied.

        The Board is statutorily empowered to order an administrative hearing if it
        determines that an investigation results in probable cause to believe a violation
        of the statute or regulations has occurred. If an administrative hearing is held,
        the Board possesses exclusive authority to review the findings of an
        administrative law judge or hearing officer from within the Board’s
        membership. The Board also possesses exclusive authority to determine
        whether to revoke, suspend, fine, or order the issuance or reinstatement of
        any license under the Board’s authority.           Pursuant to section 12-6-
        104(3)(e)(II), C.R.S., the Board’s decisions are final and not subject to review
        by the Department of Revenue, Auto Industry Division (AID).




        40
             § 12-6-104(3)(a), C.R.S.


                                               12
Pursuant to section 12-6-110(5), C.R.S., the Board also has the advisory
function of proposing, as part of its annual budget request, adjustments to the
licensure fees that the Board is authorized by law to collect. The budget
request and the adjusted fees for the Board include direct and indirect costs.
Adjustments to the fees are subject to the approval of the Executive Director of
the Department of Revenue, and remain in effect for the fiscal year for which
the appropriation is made.

The Board generally meets twice each month to fulfill its statutory functions
and responsibilities. A typical meeting consists of a morning session devoted
to reports from the Investigations Section, a review of original dealer
applications, a review of salesperson applications, and reviewing renewal or
reissue applications that have been referred to it by the AID. If the Board
deems it necessary, a general or specific discussion of issues involving motor
vehicle sales and regulation takes place before the lunch break. Hearings are
generally conducted during the afternoon portion of the meeting. Due to a
large docket of cases set for hearing, the Board generally spends the entire
second meeting of each month hearing disciplinary cases. Possible changes in
the hearing process, and delegation by the Board of certain functions may
reduce the number of meetings.

The Board has reserved to itself the authority to grant dealer licenses. This
means the Board must review each application package individually. As the
numbers of applicants and the quality of the reviews have changed over time,
this process has become very time consuming. To address this, the Board
adopted a policy of allowing the AID to prepare and present a list of
applications that meet all Board criteria for licensure as one package and the
Board approves the licenses based on AID recommendations.

Applications that do not meet all the licensing criteria are presented to the
Board individually. The most common grounds for denial are having a low net
worth, a poor credit rating from a major credit bureau, or a criminal record. The
Board occasionally denies a license based on failure to meet one or more of
the regulatory standards it has established. However, the Board occasionally
issues licenses to applicants that do not meet all of the standards for licensure.

The Board has delegated authority to the Board’s Executive Secretary
(Executive Secretary) to issue salesperson licenses for applicants that meet all
regulatory requirements for licensure. The Executive Secretary refers
applications that fail to meet one or more criteria to the Board for review. The
most common reason for an application to be referred to the Board is an
applicant’s prior criminal record. While the Board occasionally denies a license
based on a criminal history, applicants are allowed to appeal the denial.




                                    13
The Investigations Section presents approximately 10 complaint investigations
per month for review and a determination of probable cause for a hearing. The
Board schedules approximately eight disciplinary actions each month. Many of
the hearings scheduled for disciplinary action are resolved via stipulated
agreement prior to a hearing.



Agency Fiscal Information – Auto Industry Division

Chart 1 sets forth the total program expenditures for the AID, which provides
administrative support for the Board. The AID’s total program expenditures
have remained relatively consistent over the past five years, although the
increase in total expenditures reflects the increase in individual salaries, not an
increase in the number of employees. These full-time equivalent (FTE)
employee figures include the Compliance, Investigations, and Licensing
sections of the AID, which are discussed in more detail below.

                                       Chart 1
                              AID Program Expenditures

               Fiscal Year         Total Program Expenditure                FTE
                   00-01                      $1,214,578                    22.2
                   01-02                      $1,191,846                    21.2
                   02-03                      $1,266,209                    21.2
                   03-04                      $1,280,004                    21.2
                   04-05                      $1,377,301                    21.2
            Compiled by the Colorado Department of Revenue’s Auto Industry Division.

Chart 2 consists of the total Board costs and expenses attributable to the
meetings held either once or twice a month, and single Board member
licensure hearings held once a month when needed. The individual Board
members are compensated at the rate of $50 per day regardless of the actual
time spent in the meetings. In addition, any costs or expenses that are directly
related to attending the meetings are included in this chart.

                                      Chart 2
                         Motor Vehicle Dealer Board Costs

                        FY 99-00     FY 00-01     FY 01-02     FY 02-03     FY 03-04   FY 04-05
  Board Per Diems         $5,900       $6,750       $6,650       $6,150       $8,000     $5,150
  Board Meetings          $2,312       $1,572       $1,453       $1,414       $1,524       $786
  Total                   $8,212       $8,322       $8,103       $7,564       $9,524     $5,936
 Compiled by the Colorado Department of Revenue’s Auto Industry Division.




                                           14
Licensing

The Licensing Section of the AID processes all licensing applications and fees
and maintains all records for new motor vehicle dealers, used motor vehicle
dealers, wholesalers, wholesale motor vehicle auction dealers, and
salespersons.

The Licensing Section of the AID currently employs 6.2 FTE positions. This
includes an individual licensing supervisor for both the licensing of dealers and
salespersons.

The Board sets licensing fees each year, in June, based upon the previous
year’s statistics and the projected financial requirements for the upcoming
fiscal year.

                    Licensing Fees for Fiscal Year 05-06

      Dealers/Wholesalers/Wholesale Auction Dealers
      $325 - Original
      $270 - Renewal

      Salespersons
      $75 - Original
      $55 - Renewal
      $55 - Multiple (additional license for multiple dealerships)
      $55 - Reissue
      $25 - Late Fee - All License Types

      Miscellaneous
      $75 - Change of Class
      $75 - Change of Dealer Location
      $135 - Additional Dealer Location
      $75 - Change of Name
      $75 - Stock Transfer/Ownership Change
      $55 - Off-Premise Permit
      $145 - Temporary Dealer's License For Out-of-State Dealers (per
      event)

Applicants for a motor vehicle dealer’s license obtain an application package
from the AID. The package contains the application form and information on
obtaining a dealer license. Up to two partners or owners of the dealership may
sell vehicles under the dealer license without obtaining a separate salesperson
license.




                                    15
The Board, through its delegation authority, and utilizing the administrative
services of the AID, issues licenses to many different classes and types of
business entities involved in the sale and transfer of motor vehicles to the
public, or to other businesses (wholesalers, wholesale motor vehicle auction
dealers, etc.) Chart 3 below sets forth the total number of licenses issued
during fiscal years 01-02 through 05-06, to five different classes of entities
required to maintain a license with the Board as a condition to conducting
business in Colorado.

                                          Chart 3
                                     Licensing Activity

Licensing Activity Statistics            FY01-02 FY02-03 FY03-04 FY04-05 FY05-06
Wholesale Motor Vehicle Auction
                                Original        0      0       0       1       0
Dealers
                                Renewal         2      7       8       6       7
Dealers - New                   Original       52     47      57      54      46
                                Renewal       639    584     695     338     631
Dealers - Used                  Original      186    216     169     144     134
                                Renewal     1,374  1,487   1,536   1,180   1,391
Wholesalers                     Original       89    118     108      92      93
                                Renewal       322    355     348     254     362
Salespersons                    Original    5,350  4,523   4,912   5,072   4,767
                                Renewal     6,622  8,715   7,018   5,877   7,059
                                Reissue     2,478  2,982   2,965   2,615   2,663
                                Multiple    1,556  1,739   1,479   1,619   1,970
Total Licenses Issued & Renewed            18,670 20,773 19,295 17,252 19,123
Compiled by the Colorado Department of Revenue’s Auto Industry Division.

Applications for licensure are processed by the AID. In fiscal year 04-05, the
AID processed 54 original and 338 renewal applications for new motor vehicle
dealers. This is down from 695 renewals in fiscal year 03-04, and 584
renewals in fiscal year 02-03, although the number of original applications has
remained relatively constant. The number of new motor vehicle dealer
renewals rebounded to 631 in fiscal year 05-06, thereby creating the inference
that the number of renewals reported by the AID for fiscal year 04-05 is an
abnormality or inaccurate.

In fiscal year 04-05, 144 original and 1,180 renewal applications for used
motor vehicle dealers were processed by the AID. This is somewhat lower
than previous years. In fiscal year 03-04, the AID processed 169 original
applications and 1,536 renewals. In fiscal year 02-03, the AID processed 216
original applications, and 1,487 renewals for used motor vehicle dealers.

In fiscal year 04-05, the AID processed in excess of 2,000 applications for
dealer-related licenses. This data, reflected in Chart 3, indicates minor
fluctuations in the number of new and used motor vehicle dealers over the
past several years.


                                            16
There is relatively low turnover in the ownership of new motor vehicle
dealerships as not many new motor vehicle dealers go out of business. This
may be, in part, because manufacturers have fairly stringent requirements for
new car franchises, including significant capital investments and substantial
business experience.

The Board has established licensing criteria based upon its statutory authority.
However, used motor vehicle dealers do not have to meet the same strict
financial and experience requirements as most franchise dealers. This results
in higher turnover in this segment of the industry.

The dealer application requires information about the applicant’s experience in
the automotive industry, financial information, and legal and employment
history. All dealers are required to obtain a corporate surety bond in the
amount of $30,000, or in the alternative, file with the Board a certificate of
deposit in that amount. No dealer currently is using the certificate of deposit
alternative.

The Board reviews and approves all applications for dealer licensure at its
regular meetings. To expedite the licensing process, the AID divides the
applications into two categories. The first category consists of those
applications that meet all statutory and regulatory requirements for licensure,
and the applicants report no criminal history in their background. These
applications are generally approved with a minimum of discussion.

The second application category consists of those applications that fail to meet
any or all of the licensing criteria. These applicants may show a low net worth,
have a criminal history disclosed on the application, or have a credit rating
below the standard established by the Board. The AID presents these
applications individually for discussion and makes a recommendation for
licensure, denial, or request for more information. The majority of the
applicants on the long list are used motor vehicle dealers.

The Licensing Section is also responsible for processing change of class,
change of location, additional location, change of name, stock
transfer/ownership change, and off-premise permits for dealerships. Applicants
for licensure as motor vehicle dealers must submit the following minimum
information to become licensed in Colorado:

                      Motor Vehicle Dealer Licensing

Application: Owner, corporate officer or Limited Liability Company (LLC)
member must sign the application.

Financial statement: Current, accurate information is required. The Board
requires a net worth of at least $50,000.



                                   17
Credit bureau report: A credit bureau report will be obtained on every
applicant. This report is an indicator of an applicant’s financial fitness. The
Board requires an Empirica score of at least 600.

Background check: A background check will be done on every applicant. If
the applicant has ever been arrested, charged with, convicted of or pled no
contest to any felony or misdemeanor crime in the past 10 years, excluding
traffic violations, supporting court documents must be included with the
application.

Place of business affidavit:      Dealers must satisfy the following place-of-
business requirements:

       1. Permanent enclosed office with electrical service and restroom.
       2. Space to display one or more vehicles.
       3. Open to public a minimum of 12 hours a week.
       4. In compliance with local zoning.
       5. Used exclusively for the dealer business or incidental businesses,
          such as parts, repair, etc.
       6. A permanent sign displaying business name, clearly visible from the
          street.
       7. Premises owned or leased by dealer.

Dealers are not allowed to share their business site with a business owned by
another person. Wholesalers are not required to meet the place-of-business
requirements, but must maintain an office in which all vehicle records are
maintained.

Mastery examination: All applicants must score 100 percent on the open-
book, computer-generated exam. Each owner or corporate member must have
completed and submitted the "Mastery Test,” or be currently licensed as a
dealer or salesperson. The exam consists of 41 multiple-choice and 10 fill-in-
the-blank questions.

Business documents: If filing as a corporation or an LLC, a copy of the
stamped articles of incorporation filed with the Colorado Secretary of State
must be submitted. If the corporation is out-of-state, a copy of their certificate
of authority is required. If filing as a partnership, a signed copy of the
partnership agreement is required.

Franchise agreement: If applying as a franchised dealer, the manufacturer
must be licensed to do business in Colorado. If the manufacturer is so
licensed, an applicant must produce a letter from the manufacturer stating that
the applicant is authorized to sell that product line.


                                    18
Dealer plate affidavit: An application for dealer demonstration and full-use
plates must be completed, signed, and submitted.

Colorado sales tax license: (Colorado Business Form) - A copy of the sales
tax license or a copy of the sales tax application stamped with the Department
of Revenue's received stamp, as well as proof of trade name registration, must
be submitted.

Fee: The appropriate fee must be submitted for the application to be
considered.

Bond: The business entity must secure a $30,000-surety bond or certificate
of deposit in its legal name and the name under which it conducts business.

                            Salesperson Licensing

The salesperson application consists of three basic components. The first part
is basic information about the applicant, such as name, address, date of birth
and social security number. The second part requests information regarding
criminal convictions and disciplinary actions on any professional or
occupational license. The third part requires employment and educational
history for the previous five years. The applicant must then sign, under penalty
of perjury, a statement that all information contained in the application is true
and that appoints the Executive Secretary as the applicant’s authorized agent
for service of process.

The application packet contains a study guide for the salesperson
examination. The AID also offers an optional license law seminar that
applicants may attend prior to taking the examination. The examination must
be taken at the dealership that intends to employ the applicant upon licensure.

The application requires detailed information about the applicant including
criminal background and employment history. Pursuant to section 12-6-
104(3)(a.7), C.R.S., the Board is authorized to investigate and determine all
facts relative to the qualifications of licensure applicants. The final portion of
the application package is proof of a $5,000 surety bond that must be obtained
by all applicants for a salesperson license.

Once the completed application package has been submitted to AID, and a
passing score on the examination has been achieved, the prospective
salesperson is issued a temporary license and may begin work at the
dealership. There is no statutory or regulatory deadline for the Board to issue
or deny the applicant’s license. Most complete application packages are acted
upon within seven days, although an investigation into an applicant’s
background can take several months. The temporary license lasts for a
maximum of four months.



                                    19
If the salesperson license is denied, the dealership and salesperson are
notified. The salesperson must immediately stop all sales activities. Applicants
may appeal the denial within 10 days of being notified. Applicants may not
continue selling motor vehicles during the appeals process.

If a salesperson ceases employment with a dealer, the dealer is responsible
for confiscating the salesperson’s license and returning it to AID. If a
salesperson begins employment at another dealership, an application for
license reissue must be completed and submitted to the AID. Any license that
is not renewed for a period of one year is not eligible for a reissue.
Salespersons who fail to renew their licenses for one year must complete the
entire original application package.

All applicants must be employed by and licensed to a specific dealership and
location. It is not uncommon for dealers with multiple franchises and locations
to have salespersons licensed for more than one location. However, a
separate fee, application, and bond must be submitted by the salesperson for
each license.

               Criteria for Used Motor Vehicle Dealer License

Although it is somewhat confusing, the Board has clarified the types of conduct
that would require an individual or company to obtain a used motor vehicle
dealer license. These criteria include performing or arranging any of the
following transactions:

   •   Completing, arranging or assisting with the completion of motor vehicle
       purchase or lease contracts.
   •   Assisting with, negotiating, or arranging motor vehicle financing.
   •   Assisting with, arranging or negotiating the price or terms of purchase of
       a motor vehicle.
   •   Assisting with, arranging or providing delivery of the purchased or
       leased motor vehicle within Colorado.
   •   Accepting a down payment or deposit for a motor vehicle from a
       consumer.
   •   Offering, negotiating for the sale, purchase, lease or exchange of motor
       vehicles whether or not such motor vehicles are owned by such person.
       (Negotiation is defined as transacting business; discussing or arranging
       a sale; arranging the preliminaries of a business transaction; bargaining
       with another respecting a transaction; conducting communications with
       a view to reaching a settlement or agreement; that which passes
       between parties in the course of making a contract or arranging terms
       of a contract).




                                    20
   •   Receiving compensation of any kind from a Colorado dealer based on a
       per transaction, per vehicle or per referral basis. (Compensation is
       defined as a fee or other thing of value paid for transacting a piece of
       business or performing a service).

A club, service, organization, or other entity that takes ownership of motor
vehicles and sells them to Colorado citizens falls under the definition of used
motor vehicle dealer.



Examinations

The AID maintains the examination questions for the Salesperson Mastery
Examination and the Dealer and Wholesaler Mastery Examination. A score of
100 percent is necessary to pass the exam. No pre-licensure education is
required for the examination. However, AID does offer an optional license law
seminar once each month in Denver, Fort Collins, and Colorado Springs.

License Law Seminar

The AID periodically presents an educational seminar for motor vehicle
salespersons and dealers.

This seminar provides an overview of the laws and regulations governing the
sale of motor vehicles. The seminar lasts approximately two hours. The
seminar is offered at the following times, dates and locations:

   •   Colorado Springs --- 4420 Austin Bluffs Parkway, 1st Tuesday of
       month, 10 a.m. - noon.

   •   Fort Collins --- 1121 W. Prospect Road, (Revenue Building), 2nd
       Wednesday of month, 10 a.m. - noon (by appointment only).

   •   Lakewood (Denver) --- 1881 Pierce Street, (Revenue Building), 3rd
       Tuesday of month, 9 a.m. - 11:00 a.m.

                   Colorado Motor Vehicle Dealer Board
                    Salesperson Mastery Examination

Prior to licensure, motor vehicle salesperson applicants are required to score
100 percent on the Salesperson Mastery Examination. The examination is
administered by licensed motor vehicle dealers to their own salesperson
applicants. Examination administrators may be owners, managers, or other
employees authorized by the individual dealers. The applicant must take the
exam at the dealership.




                                   21
It is the exam administrator’s responsibility to make sure the applicant is the
person that derives the answers and completes the examination. The
administrator is not initially allowed to provide any answers to the applicant. If
more than one person is taking the exam at one time, the applicants may not
share answers. An interpreter may help the applicant read and understand the
questions but may not give the answers to the applicant.

After the applicant has completed the exam, the administrator grades and
scores the examination. The administrator informs the applicant which
questions were answered incorrectly. The administrator then instructs the
applicant to search the Motor Vehicle Industry License Law Manual and the
Motor Vehicle Industry License Law and Regulations to find the correct
answer, and instructs the applicant to write the correct answer next to the
incorrect response.

After the applicant has made the corrections, the administrator grades it again.
If the applicant is not able to answer a question correctly after two attempts,
the administrator may assist the applicant in locating the answer in the Motor
Vehicle Industry License Law Manual or the Motor Vehicle Industry License
Law and Regulations, and thereby “mastering” the information in the exam.

The administrator makes a copy of the Examination Affidavit and keeps the
copy along with the original Salesperson Mastery Examination in the dealer’s
Salesperson Mastery Examination File. The original Examination Affidavit
must be submitted to the AID with the salesperson’s complete application,
bond and fee.

Salesperson Mastery Examination Files are subject to audit by the Board or its
agents.


                   Colorado Motor Vehicle Dealer Board
                Dealer and Wholesaler Mastery Examination

The Dealer and Wholesaler Mastery Examination is required of all applicants
for a new or used motor vehicle dealer, or a wholesaler license.

Prior to licensure, motor vehicle dealer and wholesaler applicants are required
to score 100 percent on the Dealer and Wholesaler Mastery Examination. The
following steps apply when a dealer or wholesaler applicant self-administers
the exam. If a third party administers the exam, the applicant follows the steps
given by the administrator.

The applicant must take the exam him or herself. No one is allowed to provide
any answers to the applicant. If more than one person is taking the exam at
one time, the applicants may not share answers. An interpreter may help the
applicant read and understand the questions but may not give the answers to
the applicant.


                                    22
After the applicant has finished the examination, the applicant must fill out the
required information on the Examination Affidavit, and mail the exam and
affidavit to the AID along with the dealer's completed application, surety bond
information, and the licensure fee.

The Licensing Section grades the exam. The applicant is then contacted
regarding any questions that were answered incorrectly, and is given the
opportunity to verbally amend and correct any questions that were answered
incorrectly on the examination. Communications with the applicant continue
until the applicant’s score is deemed to be 100 percent. This examination
confirms that the applicant has “mastered” the knowledge of the motor vehicle
dealer laws and regulations covered in the examination.


Compliance and Investigations

Compliance

The AID’s Compliance Section consists of 5.0 FTE employees; one
compliance supervisor, one compliance investigator, two compliance agents,
and one administrative assistant.

The Compliance Section mediates non-complex complaints between
complainants (both public and industry) and licensees through negotiation or
education, with the goal of securing voluntary compliance by licensees.

This procedure enables AID staff to resolve complaints and educate licensees
and consumers about Colorado’s motor vehicle statutes, and the Board’s rules
and regulations. In many cases, the initial contact will resolve the problem and
prevent additional consumer harm from occurring. For example, if a consumer
files a complaint because he has not received title to his motor vehicle, a
compliance officer could gather all necessary documents, contact the dealer,
and resolve the problem by obtaining the title with a minimum of time and
trouble for the consumer. It is the general policy of the AID to resolve
complaints without Board involvement whenever possible. It is apparent from
the data collected that most complaints are resolved without Board action.

Examples of complaints processed by the Compliance Section include but are
not limited to:

   •   Failure to deliver title within 30 days;
   •   Failure to meet terms and conditions of a written contract;
   •   Failure to comply with laws and regulations governing advertising;
   •   Sale of unsafe vehicles; and
   •   Misunderstandings related to contracts or financing.



                                      23
Chart 4 summarizes the types of complaints, both regulatory and criminal, that
the AID’s Compliance Section receives and works to resolve. This chart also
demonstrates that the complaints and problems related to motor vehicle titles,
contracts, and financing, account for the majority of complaints received by
this section.

                                       Chart 4
                                 Compliance Summary

              Type                FY 01-02    FY 02-03   FY 03-04   FY 04-05    FY 05-06   TOTAL
  Advertising                          31         58          35           20        55      199
  Contract/Financing                  191        138         147          252       261      989
  Deposit                              33         16          14           22        23      108
  Equipment                           100         66          73          102       146      487
  False Statement/Application            1         0            0           0         0        1
  General Licensing
                                         0         0            1           1          1       3
  Requirements
  Housing/Location
                                         0         0            1           0          0       1
  Requirements
  Lease Contract                         4         1            2           1          2      10
  Misrepresentation                    86         65          60           44         81     336
  Odometer                               2         0            0           2          2       6
  Dealer Plates/Temporary
                                        30        29          22           35          7     123
  Registrations
  Repossession                         11          9          14           19        17        70
  Titles                              443        288         350          375       310     1,766
  Unlicensed Dealer/Salesman             0         2            0           0         1         3
  Miscellaneous                       126        140         156           90        23       535
  Warranty                             46         35          29           89        50       249
  Check/Draft                          17         10          11           28         4        70
  Insufficient Information             60         23          36           50        13       182
  Unfounded                           416        373         373          395       134     1,691
  TOTAL                             1,121        857         915        1,080       983     4,956
 Compiled by the Colorado Department of Revenue’s Auto Industry Division.

Investigations

The AID’s Investigations Section consists of 11 investigators and a supervising
investigator (Agent in Charge). Investigators are stationed in Denver, Colorado
Springs, Fort Collins and Grand Junction. Complaints are assigned to
investigators who frequently make contact with the complaining party and the
dealer. Often, the investigator resolves complaints by facilitating
communication between the parties. Investigation and compliance data
indicate that no actionable violation (unfounded complaints) occurred in
approximately 20 percent of the complaints filed with AID. A common
underlying cause of the “unfounded” complaint is a form of buyer’s remorse.
This generally consists of a consumer having a change of mind or second
thoughts about the transaction, and consequently wanting to unwind the deal
after executing all necessary documents and contracts to complete the sale.
Another example of a common unfounded complaint is a motor vehicle buyer
who incorrectly believes that there is a three-day right of rescission.



                                             24
The Board devotes time during each meeting to review and consider the
investigation reports forwarded to it by the Investigations Section. After a
briefing by the investigative officer, the Board discusses whether to initiate
disciplinary action, request further investigation, or dismiss the complaint. The
Board may also decide to offer a settlement to the respondent licensee. When
settlement is offered, the licensee may either accept the settlement, make a
counter offer, or request a hearing, which is currently held before the full
Board.

The Investigations Section investigates complex regulatory and criminal
complaints filed against licensees. The Investigations Section also investigates
sales of motor vehicles offered by those who are not licensed. Investigators
can pursue prosecution of criminal complaints or through administrative
sanctions, through the issuance of a summons, or through direct filing with the
local district attorney. The Investigations Section also investigates fraudulent
titles, title documents, and permits and forgery of the aforementioned
documents.

Examples of investigations include but are not limited to:

   •   Odometer fraud;
   •   Salvage fraud;
   •   Title fraud;
   •   Sale of a stolen vehicle;
   •   Failure to disclose material information; and
   •   Unlicensed vehicle sales.

The Investigations Section also provides training seminars to the public and
industry in an attempt to prevent title, odometer, and salvage fraud; and
provides training to licensees in proper title assignments, proper completion of
required documents and advertising.

Chart 5 below, sets forth the types and numbers of actions and cases that the
Investigations Section has handled in the past five fiscal years. The figures in
this chart indicate that the number of cases handled by the Investigations
Section is generally declining, although this in not true for all types and
categories included in this data. Nonetheless, the total number of investigative
actions in fiscal year 05-06 (934) is almost one-half of the total number of
investigative actions taken in fiscal year 02-03 (1,759).




                                    25
                                          Chart 5
                                  Investigation Summary
               Type            FY 01-02 FY 02-03 FY 03-04 FY 04-05              FY 05-06   TOTAL
 Advertising                           0          1            3            3          5       12
 Background/Record Check               0          0            0            0          0        0
 Contract/Financing                  66          80           61           33         38      278
 Deposit                             22           9            7            3          2       43
 Equipment                             6          1            1            0          5       13
 False Statement/Application           8          5            7            5          2       27
 Lease Contract                      31          11            2            0          0       44
 Misrepresentation                  174         122         117           121         49      583
 Odometer                            79          68           54           51         22      274
 Dealer Plates/Temporary
                                       8          6           25           38        38       115
 Registrations
 Repossession                          1          3            9            2         0        15
 Service of Process                  38          28           36           13         8       123
 Titles                             542         267         364           175       259     1,607
 Unlicensed
                                    405         350         336           315       207     1,613
 Dealer/Salesman
 Miscellaneous                       35          50           38           13        15       151
 Warranty                            85          32           19           16        16       168
 Check/Draft                         41          38           31           22        21       153
 Special Investigation              216         231         322           342       244     1,355
 Other                                 2          5            1            6         3        17
 Insufficient Information           386         303         305           313       128     1,435
 Unfounded                          146         122         144            97        87       596
 TOTAL                            1,759      1,307        1,433         1,158       934     6,591
Compiled by the Colorado Department of Revenue’s Auto Industry Division.



Complaints/Disciplinary Actions

Complaint Process

The AID reports that prior to a complaint being filed with the Board,
complainants frequently contact the dealership in question and try to resolve
the problem. If the general manager or owner does not satisfactorily resolve
the problem, a complaint is often filed with the Board and the AID.

The AID receives all complaints regarding motor vehicle dealers in written
form, and reviews each complaint to determine jurisdiction and whether it is a
criminal, investigative, or compliance matter. A copy of the complaint and a
letter requesting a response in 10 days are sent to the dealer. If the complaint
is resolved, the case is closed. If it is not resolved, then the complaint is
entered and assigned to an investigator. The complaint is then collated along
with a screen print of the dealer’s history and given to the investigator. At this
time, the Agent in Charge is notified of the open investigation. The
investigator conducts the investigation and issues a preliminary report that is
reviewed by the Agent in Charge. The Agent in Charge can either accept the
report or reject the report and send it back for further investigation. Once
accepted, the investigator issues the final written report, conclusion and
recommendation.


                                            26
Once the case is closed it is filed in a cabinet based on the case number,
microfilmed to archives, and checked for accuracy and completeness. Finally,
the documents are recycled and the film is filed. A chart highlighting this
complaint process is attached in Appendix B on page 55.

                               Chart 6
    Complaint, Compliance Action and Disciplinary Action Summary

              Year            FY 01-02    FY 02-03     FY 03-04      FY 04-05    FY 05-06   TOTAL
 Regulatory and Criminal
 Complaints Investigated and    1,759        1,307         1,433         1,158       934     6,591
 Completed
 Founded Regulatory
                                1,228          881           987           752       721     4,569
 Complaints
 Compliance Completed           1,121          857           915         1,080       983     4,956
 Investigations Referred to
                                  408          165           159            84       140      956
 Board
 Disciplinary Actions by
                                  200          144           212            67       187      810
 Board
 Suspensions                        8             6           14             0        13       41
 Revocations                       23            12           21             9        12       77
 Probations                        20            33           64            18        17      152
 Stipulations                      15            24           11             8        12       70
 Fines                             12             7           16            26        11       72
Compiled by the Colorado Department of Revenue’s Auto Industry Division.

Chart 6 summarizes the total number of complaints received, both criminal and
regulatory, the total number of compliance actions taken, the total number of
investigations referred to the Board and the number of disciplinary actions
taken by the Board. The AID notes that although some criminal complaints
were handled by the AID, many of the criminal complaints investigated and
completed were referred to local district attorneys for criminal prosecution.
These criminal prosecutions are not included in the totals reflected in this
chart. This chart also summarizes the sanctions imposed by the Board after
referral from AID.

Investigation Process

After a full investigation, the investigator issues a final written report,
conclusion and recommendation. If the investigator finds no violation, the
case is closed and approved for closure by the Agent in Charge. If the
investigator determines that a violation has occurred, one of five actions can
be taken. First, the complaint can be referred to another agency that has
proper jurisdiction over the matter, or if it is a criminal matter, the complaint
can be directly filed with the appropriate district attorney. Second, a verbal
warning may be given to the dealer for minor infractions. Once given, the case
is closed upon approval by the Agent in Charge. Third, a written warning may
be issued if the complaint has been resolved. This generally occurs when a
dealer has had a pattern of similar violations. Once issued, a copy of the
disposition is sent to the dealer and to the complainant, and the case is closed
upon approval by the Agent in Charge. Fourth, the investigator can


                                           27
recommend review by the Board. Once approved by the Agent in Charge, a
probable cause affidavit is sent to the Board for a vote. If the Board votes
negatively, staff closes the case. If the Board votes affirmatively, the matter is
referred to the Attorney General’s Office for prosecution, adjudicated, and
closed by staff upon vote of the Board. Lastly, the complaint can be resolved
by the dealer and dismissed by the Agent in Charge. A chart setting forth this
process can be found in Appendix C on page 56.

Adjudication Process

Once the Board receives a probable cause affidavit from the AID, a copy is
sent to the Board’s Executive Secretary and Assistant Attorney General. The
Board then reviews and discusses the complaint at the next monthly meeting.
At the meeting, investigative staff will present and answer questions, and on
occasion the Assistant Attorney General will give input or legal advice to the
Board. After discussion, the Board takes action by “motion and resolution.”
The Board has four disposition options. First, if the Board needs more
information, it will order further investigation by the AID. Second, the Board
can make a finding of no probable cause, and the complaint will be dismissed.
Third, the Board can find probable cause but choose to take no further action.
Lastly, the Board can order a full hearing. In the event of hearing, the
investigative report is sent to the Assistant Attorney General who drafts the
charges and sends them to the Executive Secretary. The Executive Secretary
then sends notice of the charges to the dealer and complainant. The dealer
then generally has the option to settle or go to hearing. A settlement can be
approved by the AID and then approved by motion and resolution by the
Board, or the settlement can be directly approved by motion and resolution by
the Board. If the dealer elects the hearing, a full hearing is conducted and the
Board votes on the final outcome. The Board’s decision is then binding on the
parties. The case can be appealed to the Colorado Court of Appeals. If not
appealed, the case is closed. A chart delineating this process can be found at
Appendix D on page 57.

License Denials

Pursuant to section 12-6-118(3), C.R.S., a new or used motor vehicle dealer, a
wholesale motor vehicle auction dealer, or a motor vehicle wholesaler’s
license may be denied, suspended or revoked based upon a violation of
numerous specific statutory criteria. Some notable examples include:

   •   A material misstatement in a license application.
   •   Defrauding any buyer, seller, motor vehicle salesperson, or financial
       institution to that entity’s detriment.
   •   The intentional or negligent failure to perform any written agreement
       with any buyer or seller.



                                    28
   •   Failure to furnish and keep in force any bond required for licensure.
   •   Intentionally publishing or circulating any advertising which is
       misleading or inaccurate in any material particular, or which represents
       any of the products sold or furnished by a licensed dealer.
   •   To willfully violate any state or federal law respecting commerce or
       motor vehicles or any lawful rule or regulation respecting commerce or
       motor vehicles promulgated by any licensing or regulatory authority
       pertaining to motor vehicles, under circumstances in which the act
       constituting the violation directly and necessarily involves commerce or
       motor vehicles.
   •   Representing or selling as a new and unused motor vehicle, any motor
       vehicle which the dealer or salesperson knows has been used and
       operated for demonstrated purposes or which the dealer or salesperson
       knows is a used motor vehicle.

Pursuant to section 12-6-118(7)(a), C.R.S., any license issued by the Board,
or a pending licensure application, must be revoked or denied if the licensee or
applicant has been convicted of, or pleaded no contest to, a felony in violation
of Article 3, 4 or 5, of Title 18 C.R.S., or a crime involving odometer fraud,
salvage fraud, motor vehicle title fraud, or the defrauding of a retail consumer
in a motor vehicle sale or lease transaction. These grounds for revocation or
denial are called mandatory disqualifiers, due to the fact that the Board does
not have the authority or discretion to override these statutory criteria.

Disciplinary Actions

Previous sunset reports were highly critical of the enforcement and disciplinary
record of the Board. A review of enforcement and disciplinary actions indicates
a substantial increase in the number of disciplinary actions taken. Between
1990 and 1996, the Board averaged approximately 46 disciplinary actions per
year. Over the past five years, the Board has averaged over 180 actions per
year, which encompasses all forms of actions including licensure matters such
as license denials and probationary licenses.

Most regulatory agencies in Colorado refer disciplinary hearings to an
administrative law judge (ALJ) or a hearing officer. The Board conducts all of
the hearings itself, and does not refer hearings to ALJ’s or hearing officers
although the Board has the statutory authority to do so pursuant to section 12-
6-119, C.R.S.




                                    29
Section 12-6-118(5), C.R.S., delineates 16 specific grounds for discipline for
licensed motor vehicle salespersons. Statutory offenses for which a license
may be disciplined include fraudulent business practices, knowingly trafficking
in stolen vehicles, odometer fraud, defrauding a retail buyer to such person’s
damage, or willfully violating any state or federal law respecting commerce or
motor vehicles.

Section 12-6-118(3), C.R.S., establishes 18 individual grounds for discipline
for licensed new, used and wholesale motor vehicle dealers. Statutory
offenses for which a licensee may be disciplined (including license suspension
or revocation) include fraud, misrepresentation, failure to perform, false or
misleading advertising, illegal business practices, and violation of a Board rule
or regulation. Individuals who act in the capacity of a licensee, but who are not
licensed by the Board commit a violation of section 12-6-120(2), C.R.S., which
is punishable as a Class 3 misdemeanor.

                                         Chart 7
                                   Disciplinary Actions

                  Number
   Fiscal Year              Suspend Revoke Probation Fine Other Fine $ Collected
                 of Actions
      01-02           200        8     23       20    12   15        $45,100
      02-03           144        6     12       33     7   24       $137,952
      03-04           212       14     21       64    16   11        $15,100
      04-05            67        0      9       18    26     8       $38,641
      05-06           187       13     12       17    11   12        $53,100
  Compiled by the Colorado Department of Revenue’s Auto industry Division.

Chart 7 delineates, by fiscal year, the number of total Board actions, and the
amounts of fines actually collected. The figures and numbers in Charts 7 and
8, and numbers reflecting or dependent on the categories set forth in Board
disciplinary actions are not considered reliable by the Department of
Regulatory Agencies. The basis for this assertion is set forth in Administrative
Recommendation 1. These charts were submitted by the AID as the best data
that was available at the time requested, and consequently included in this
report.

Only a small percentage of the “founded” complaints are referred to the Board
for disciplinary action. When complaint investigations are referred to the
Board, many are dismissed without a hearing. Chart 8 below, compares
complaints, Board referrals, and disciplinary actions taken by the Board for a
five fiscal-year period.




                                           30
                                       Chart 8
                          Complaint, Referral, and Discipline

Fiscal                            Investigations Referred to         Disciplinary Actions By
       Founded Complaints
 Year                                       Board                             Board
01-02          1,228                          408                             200
02-03            881                          165                             144
03-04            987                          159                             212
04-05            752                           84                              67
05-06            721                          140                             187
Compiled by the Colorado Department of Revenue’s Auto Industry Division.

An inquiry into a complaint is limited to alleged violations of motor vehicle laws.
Examples of motor vehicle law violations could be:

    •   Failing to deliver title within 30 days of the sale.
    •   Failing to meet all terms and conditions contained in the written
        contract.
    •   Tampering with an odometer or giving a false odometer statement.
    •   Willfully misrepresenting or failing to disclose any information required
        by law.
    •   Intentionally publishing or circulating any advertising that is misleading
        or inaccurate.
    •   Selling vehicles that do not meet the safety and emission equipment
        requirements.
    •   Failing to give notice of approval or rejection on a finance deal to the
        customer within a reasonable time.
    •   Selling a salvage vehicle without proper disclosure.
    •   Selling a vehicle that is known to be stolen.
    •   Not maintaining a place of business and minimum operating hours.
    •   Selling a vehicle to a resident of the Automotive Inspection and
        Readjustment Program area without an emissions sticker.

Although many members of the public are uncertain of the scope of the
Board’s authority, there are certain circumstances that are not violations of the
motor vehicle dealer law.




                                            31
For example, the consumer does not have 72 hours to change his or her mind
on a car deal. When the contract is signed, the vehicle is bought and sold as of
the contract date. The dealer does not have to repair the vehicle after the sale
when the vehicle is sold without a warranty and "AS IS," unless it is a specific
safety item. However, a dealer must disclose known defects even if the vehicle
is sold “AS IS.” The Board cannot require a dealer to honor a verbal
agreement. The consumer is provided a "State Disclosure Form" indicating
that any verbal agreements are not enforceable.

Complaints concerning these issues will not be investigated. If any repair work
was not part of a vehicle sales contract, it is outside the jurisdiction of the
Board. The local district attorney does have jurisdiction over illegal actions by
an automotive repair facility. A complaint concerning repair work may be filed
with the appropriate district attorney's office. The Colorado Lemon Law applies
only to new vehicles under one year old. It does not apply to used vehicles
purchased by consumers who encounter repair problems.

The Board requires that complaints be in writing. A verbal complaint presented
over the telephone, or in person cannot be accepted (unless reduced to written
form).

The Board has jurisdiction to inquire into complaints in cases where a
consumer has purchased a car, truck, trailer or motorcycle from a licensed
Colorado dealer and a violation of the law has allegedly occurred. Also, the
AID will investigate unlicensed sales activity. It does not have jurisdiction to
inquire into a complaint between private parties.

When a complaint is received, it is assigned to a compliance specialist or
investigator. During the course of the investigation, the AID may contact the
complainant to discuss the issues raised and may also encourage the dealer
to contact the complainant directly to resolve the complaint.

After receiving information from both parties, the AID or the Board determines
if the facts support a violation of the law. The fact-gathering process generally
takes about 30 days, depending on the complexity of the issue.

If it is determined that a violation of the law or Board rules and regulations did
not occur, the complainant is notified.

If it is determined that a violation occurred, the dealer and complainant are
notified. The AID often will attempt to mediate a fair resolution between the
dealer and the complainant. The complainant is advised of the dealer's
agreement and timetable to resolve the complaint.




                                    32
Depending on the complaint, the AID may suggest pursuing civil remedies or
recommend contacting another agency. Neither the AID nor the Board can
order or direct a dealer to give a refund to a complainant. The dealer may
make such an offer in an effort to resolve a complaint. The complainant may
have to pursue a civil suit or claim against the dealer's bond to obtain a
monetary resolution. A court judgment or the Board finding of a fraudulent
conduct violation must normally support claims against a dealer’s bond.

Upon conclusion of the process, the complainant is notified by telephone or in
writing of the action taken. It typically takes approximately 30 days to complete
the complaint resolution process. As previously indicated on page 27, Chart 6
indicates the number of complaints that were considered by AID to be
founded, the number of those that were ultimately referred to the Board, and
the number of complaints that resulted in a Board-ordered disciplinary action.




                                    33
Analysis and Recommendations

        Recommendation 1 – Continue the Colorado Motor Vehicle Dealer
        Board for five years, until 2012.

        The legislative intent of the motor vehicle statutes is to protect the consumer
        and to create a feeling of confidence and trust in the dealer by the public. The
        complicated nature of the industry, the potential for consumer harm, and the
        actuality of consumer harm, substantiate the need for continuing oversight of
        the industry.

        The structure of the motor vehicle industry is conducive to attracting a
        somewhat transient group of salespersons. The motor vehicle retail industry
        directly and indirectly generates over 33,000 jobs in Colorado, and Colorado
        residents earned in excess of $1.6 billion in 2004 as a result of motor vehicle
        dealership operations. Each month, approximately 300 applicants are granted
        temporary licenses enabling these applicants to work as salespersons for up
        to 120 days prior to being actually approved or denied for licensure. The
        compensation package generally offered to salespersons includes a relatively
        small salary, coupled with commission income based upon sales. This type of
        pay structure pressures the salesperson to maximize sales in order to earn
        reasonable compensation. This increases the potential for salespersons to
        defraud or take advantage of consumers.

        Without regulation, the consumer would be in a less equitable position and
        would have no way of resolving complaints except through an expensive and
        time consuming civil action. Although the significant number of complaints that
        are resolved prior to action by the Colorado Motor Vehicle Dealer Board
        (Board) indicates the importance of the Department of Revenue, Auto Industry
        Division’s (AID’s) Compliance and Investigations Sections in mitigating
        complaints, the Board also handles a large number of disciplinary actions
        yearly. Since the purchase of a motor vehicle is a major investment for a
        consumer that requires participation in a complicated contractual transaction
        (between the dealer and consumer), the need for Board oversight of the
        industry is well substantiated.

        In order to promulgate effective regulations that cover specific practices in the
        industry, regulators must understand the day-to-day operations of new and
        used motor vehicle dealerships. This is important to ensure that regulations
        are written with clearly defined standards capable of consistent enforcement.




                                            34
The purchase of a motor vehicle is one of the largest expenses that
consumers incur, and motor vehicle dealers, and especially salespersons, are
not held in high regard by the public. The questionable business practices of a
minority of individuals can reflect negatively on the occupation as a whole.
Although the general public may be largely unaware of the Board and its
oversight of the motor vehicle industry, the Board provides a certain degree of
protection for all consumers in Colorado involved in the purchase of a motor
vehicle.

The recommendation to continue this Board until 2012 is based on the quality
of data submitted by the AID, and the thought that this will improve over the
next few years, thereby making the next sunset review more meaningful.



Recommendation 2 – Increase the surety bond required of new and
used motor vehicle dealers to $50,000.

There are some transactions that cannot be resolved between the consumer
and the motor vehicle dealer (e.g., the dealer may not agree to settle a dispute
with a consumer, or the dealer may be out of business). Consequently, every
Colorado new and used motor vehicle dealer is required to be covered by a
$30,000-surety bond, which is available for consumer reimbursement of any
loss or damage suffered as a result of a dealer’s misrepresentations or
fraudulent activities. The cost of the dealer bond is generally $300 per year (or
one percent of the bond amount) for a $30,000-bond.

Generally, most states require that motor vehicle dealers secure a surety bond
to offer financial protection to consumers in the event that the licensed motor
vehicle dealer (new or used) has financial difficulties, or is unable to produce
title or fulfill other requirements necessary to complete a transaction. In
Colorado, this bond requirement is governed by section 12-6-111, Colorado
Revised Statutes (C.R.S.).

The following is a summary highlighting the bonding requirements of the states
located in Colorado’s general Rocky Mountain/Western United States
geographic area.

      Arizona
      A surety bond of not more than $50,000 for each type of license
      for each county where dealer has established business; required
      for each location.

      California
      A $10,000-bond is required.




                                    35
Idaho
A $10,000-bond is required for motorcycle, all-terrain vehicles and
snow machine dealers; $20,000 for all others.

Iowa
A $50,000-surety bond must be filed.

Kansas
A $30,000-bond is required.

Missouri
A $25,000-corporate surety bond is required.

Montana
Franchised dealers, used motor vehicle dealers, recreational
vehicle dealers, auto auctions, wholesalers and trailer dealers who
sell mobile homes, house trailers and commercial trailers
exceeding 6,000 pounds gross vehicle weight are required to post
a $25,000-bond. Wholesaler and trailer dealers selling trailers
under 6,000 pounds gross vehicle weight and motorcycle dealers
must post a $10,000-bond.

Nebraska
A $25,000-bond is required.

Nevada
A $50,000-surety bond is required.

New Mexico
A $20,000-corporate surety bond is required for auto dealers,
salvage dealers, manufacturers, mobile home dealers and
motorcycle dealers. A $12,500-bond is required for motorcycle
dealers; no bond for boat dealers.

North Dakota
All motor vehicle dealers are required to maintain a $25,000-surety
bond. All mobile home trailer and motorcycle dealers must
maintain a $10,000-surety bond.

Oklahoma
A $15,000-bond is required for used motor vehicle dealers.
A $25,000-bond is required for wholesale dealers.

Oklahoma-licensed salesmen are required to maintain a $1,000-
bond.




                              36
      Oregon
      A $40,000-bond is required.
      First $20,000 of bond is available for claims by business entities
      and consumers. Any value over $20,000 is only available for
      claims by consumers.

      South Dakota
      Motorcycle Dealers– A $5,000-bond is required.
      Trailer Dealers – A $10,000-bond is required.
      Mobile/Manufactured Home Dealers – A $25,000-bond is required.
      Snowmobile Dealers – A $5,000-bond is required.
      Boat Dealers – A $20,000-bond is required.
      New and Used Car Dealers – A $25,000-bond is required.

      Texas
      A $25,000-surety bond is required for motor vehicle, motorcycle,
      wholesale, and wholesale auction dealers for the licensed period
      unless the dealer is a franchised dealer or trailer dealer.

      Utah
      A $75,000-corporate surety bond is required for new or used
      vehicle dealers. A $1,000-corporate surety bond is required for
      new or used motorcycle or small trailer (750 pounds unladen
      weight or less) dealers.

      Washington
      A $30,000-bond is required for motor vehicle dealers.

      Wyoming
      A $25,000-dealer bond is required.

Increasing the Colorado bond requirement to $50,000 would make Colorado’s
bond one of the higher bonds required in the surveyed area. However,
Colorado would not be the only state to require a bond in this amount. Utah
now requires a bond in the amount of $75,000. Nevada, Arizona, and Iowa
currently require a $50,000-bond. The financial protection provided to the
public is enhanced with a higher bond amount.

The AID has indicated that, in many instances, the amount of damages or loss
to consumers has far exceeded the current surety bond of $30,000. Chart 9
below consists of a summary of eight individual dealerships over the past two
years whose surety bonds were insufficient to cover the financial losses of
their retail customers. The worst of these situations was a dealership that was
unable to provide either the purchased vehicle, or title to said vehicle in 22
individual transactions. The total deficiency to consumers amounted to
$381,042.28, with this dealer also defrauding its financial lender in the amount
of $182,431.98.




                                   37
                                         Chart 9
                                     Bond Deficiencies

                        Number of Vehicles
      Dealership                                          Damages             Deficiency
                           (Defaulted)
           1                    2                        $42,751.00            $12,751.00
           2                    1                        $44,284.8841          $14,284.88
           3                    9                       $239,712.97           $209,712.97
           4                   10                      $107,429.6942           $77,429.69
           5                    8                        $43,178.83            $13,178.83
           6                   12                      $123,929.0043           $93,929.00
           7                   22                      $563,474.2644          $533,474.26
           8                    6                        $45,191.79            $15,191.79
          Total                70                     $1,209,952.42           $969,952.42
     Compiled by DORA based on data received from the Colorado Department of Revenue.

An important factor relating to the surety bond is the escalating price of motor
vehicles, both new and used. As the prices of motor vehicles rise, so must the
surety bond amount increase to maintain a fair and reasonable reserve to
compensate innocent consumers who have lost money due to a dealer’s
misrepresentation or fraudulent activities.

Nationally, franchised new motor vehicle dealers sold almost 20 million used
cars in 2005. The average retail price of a used motor vehicle was $14,925.
The average retail-selling price of new vehicles nationally increased
approximately $8,000 between 1995 and 2005. The average retail-selling price
for new cars in 1995 was $20,450, and in 2000 the amount rose to $24,900.
The 2005 average retail-selling price of new vehicles was $28,400, (only
$1,600 below the current motor vehicle dealer bond requirement),
demonstrating a steady and consistent increase in new vehicle prices over the
past 10 years. The average selling price of a new vehicle increased by 1.8
percent between 2003 and 2004, and 1.1 percent between 2004 and 2005.45

Although this increase in the bond amount will not prevent consumer harm in
many of the situations noted above, it will afford an increased degree of
protection to most Colorado consumers.




41
   Includes approximately $30,000 deficiency relating to tax owed.
42
   Includes approximately $23,000 deficiency for failure to make pay-off.
43
   Includes $56,312.53 deficiency for defrauding floorplanner (lender), etc.
44
   Includes approximately $183,000 deficiency for defrauding floorplanner.
45
   Economic Impact of America’s New-Car and New-Truck Dealers, DADA Data, 2006, p. 11, available at
www.nada.org/Content/NavigationMenu/Newsroom/NADAData/20062/Nada_Data_2006.pdf. Viewed
August 23 and September 29, 2006.


                                            38
Recommendation 3 – Delete the $5,000-surety bond required for new
and used motor vehicle salespersons.

The current surety bond for new and used motor vehicle salespersons is
$5,000, as set forth in section 12-6-112(1), C.R.S. The fee for this bond is
approximately $50, or one percent of the bond amount. With the price of new
and used cars escalating yearly, it is apparent that a $5,000-bond is not an
adequate protective device for consumers. The motor vehicle dealers must
maintain a bond in the minimum amount of $30,000, which is accessible in a
similar fashion to a salespersons bond, by a finding of misrepresentation or
fraudulent activity.

The AID does not have records to indicate that a single salesperson’s bond
has been opened or accessed over the past five years. The two largest issuers
of salesperson surety bonds in Colorado indicate that fewer than one
salesperson bond was opened in each year during the past five years, and
that almost every party seeking to open the salesperson’s bond was an
employer-dealer. One motor vehicle dealer member of the Board attempted to
open and access an employee’s bond several years ago. However, the
process became too expensive and time-consuming to complete, and the
attempt to open the bond was subsequently abandoned by the dealer.
Consumers who have been the subject of a dealership’s fraudulent activities
generally try to open and access the dealer’s $30,000-bond, as the larger
amount of the bond offers greater compensation to provide for the related
expenses necessary to make the consumer whole.

Some new and used motor vehicle dealers are supportive of the salesperson’s
bond, as the bonding requirements for salespersons seem to shift the cost for
questionable employment practices from the dealership to the bonded
employee. However, retail consumers rarely receive any compensation from
this bond. Even if a consumer did make a claim on a bond, the costs for
recovery would possibly exceed the maximum amount of this bond.

However, eliminating this bond requirement for salespersons does not
diminish public protection, nor does it prevent a dealer from requiring that
salesperson employees obtain a bond as a condition of employment. This, in
effect, may benefit those dealerships that have higher standards for their
employees. Consequently, the recommendation is to delete this bond
requirement, because it offers inadequate, unnecessary, and duplicative
protection to consumers and the public.




                                  39
Recommendation 4 - Modify the composition of the Board by replacing
one new motor vehicle dealer member and one used motor vehicle
dealer member with a Colorado county clerk and an individual
employed as an executive in the financial lending sector.

The purpose of a board consisting of a mixture of public and industry members
is to provide a balanced set of regulations to effectively protect the public
without unnecessarily interfering with the business operations of the industry.
Currently, two-thirds of the Board’s membership is actively involved in the
retail sales of motor vehicles, with one-third of the Board new motor vehicle
dealers, and one-third used motor vehicle dealers. The general purpose of
industry-based Board members is to include a degree of industry-related
knowledge and expertise to assist the Board in its functions of licensing and
discipline of licensees. In fact, many Board meetings in 2006 were opened by
the president of the Board, a public member, expressing her appreciation to
the Board’s industry members for sharing their insights into the workings of the
motor vehicle sales industry.

The current Board members are commendable in terms of their time
commitment and sense of responsibility to the industry and public. They
typically spend at least two full days a month responding to administrative
issues and acting as hearing officers. The Board members appear to take their
responsibility to oversee the motor vehicle industry very seriously, although
many types of licensees are not represented on the Board, including
wholesale motor vehicle auction dealers and wholesalers, and motor vehicle
salespersons.

Industry representatives, particularly the new and used motor vehicle dealer
associations, believe that the motor vehicle industry should have a majority of
representation on the Board. This belief is based on the premise that it is their
industry that is greatly impacted by Board decisions. Although this is true, the
motor vehicle industry may sometimes lose sight of the underlying function of
the Board, to protect the consumer and the public. Many states have boards
that are dominated by public members, and one state, Texas, allows only
public members on its board.

Although it is critical for the Board make-up to contain individuals with an
understanding of the industry, and share that necessary expertise, it is also
critical to have balanced representation on the Board of consumers and other
professions that interact and transact business with the motor vehicle industry.
Therefore, it is recommended that the Board membership be modified by
replacing one new and one used motor vehicle dealer member with a
Colorado county clerk, and an individual who is employed by and has
expertise in the motor vehicle financing sector in Colorado.




                                    40
The Board typically receives consumer complaints relating to many areas of
the industry. The most common complaint involves problems dealing with the
motor vehicle dealer failing to deliver title to a consumer after the contract for
sale has been executed, and possession of the vehicle has been transferred to
the consumer. There are a variety of reasons that a title could be delayed or
not transferred expeditiously to a consumer. Dealers allege that often financial
institutions do not release the title or lien on the title in a timely manner.
Consumers themselves sometimes mislead dealers as to the accessibility of
their titles when trading in a used car as part of the sales transaction. Another
reason is that some titles must transfer from another state.

Although these reasons are all somewhat valid, the complaint that the Board
experiences more than any other is the dealer who cannot, or will not, provide
title to the consumer after the sales contract is in effect. Used motor vehicle
dealers are almost always involved in these situations, and frequently harm
the consumers financially by not providing good title after the consumer has
taken possession of the vehicle in question. This prevents the consumer from
acquiring license plates and registration documents, and does not allow the
consumer to sell the vehicle in the future. The underlying obstacles in
providing good title are often financial in nature, that is, the dealer does not
have sufficient working capital to acquire the title from the financial lender. A
typical situation that the Board encounters is a dealer that has financially
overextended itself, and utilizes a current customer’s payment to payoff and
acquire title for a previous customer.

In general, penalties imposed on new motor vehicle dealers are more lenient
than those imposed on used motor vehicle dealers. In some contexts this is an
appropriate exercise of Board authority. When a new motor vehicle dealership
is accused of violating Colorado motor vehicle laws, it often enters into a
voluntary stipulation with the Board that will ultimately make the consumer
whole, even though a low-level employee may have caused the transgression.
However, in Board actions relating to used motor vehicle dealers, the
transgressor is frequently the owner-dealer, who is also the salesperson.
Although many used car complaints are resolved by stipulation, there are
many instances where the used motor vehicle dealer does not have the
financial ability to resolve the complaint by, among other things, making the
consumer financially whole. The guiding principal is to protect the public now,
and in the future.

Some Board members have expressed a general lack of understanding as to
what occurs behind the scenes at lending institutions and the county clerk’s
office, where the title is actually issued to the consumer.




                                    41
Consequently, this recommendation is to add the knowledge and expertise of
these two institutions to the Board, without losing the expertise provided by
industry members. Replacing one new and one used motor vehicle dealer
Board member with a county clerk and financial lending expert increases the
Board’s areas of relevant expertise, while still retaining the knowledge of four
members of the motor vehicle retail sales industry.


Recommendation 5 - Require the Board to utilize administrative law
judges to conduct motor vehicle dealer licensure and disciplinary
hearings, and Department of Revenue hearing officers to conduct
salesperson licensure and disciplinary hearings.

A summary of the primary benefits associated with this recommendation is as
follows:
     •   Better use of Board time to address regulatory and policy issues;
     •   Increased protection of licensees’ due process rights;
     •   Increased consistency in Board disciplinary decisions; and
     •   Reduction in legal conflicts and fewer appeals.

Individual Board members frequently cite the Board’s heavy caseload as their
rationale for the Board’s failure to allocate time to address public policy and
regulatory issues. At most Board meetings, a policy or regulatory issue that
needs to be considered and addressed is the subject of some degree of
discussion, frequently without an adequate resolution. Nevertheless, the Board
spends countless hours at each meeting hearing appeals of license denial
matters and routine disciplinary cases.

Although care must be exercised so as not to adversely affect an applicant’s
due process rights, appeals of staff licensure decisions should be conducted
by hearing officers experienced in interpreting regulatory statutes and
standards. Disciplinary actions of current licensees should be addressed in a
similar manner. Relatively simplistic dealer licensee cases, or cases dealing
with salesperson licensure, should be referred to a Department of Revenue
(DOR) hearing officer. Cases relating to an alleged, potentially serious, or
complicated transgression of a licensed motor vehicle dealer should be
referred to an Administrative Law Judge (ALJ), either at the Department of
Administrative Hearings (DOAH), or an ALJ sitting at the DOR. To ensure
fairness and lack of bias, all hearing officers and ALJ’s should be randomly
selected to hear individual cases.

Numerous benefits to the Board would occur by utilizing the services of
professional hearing officers, despite the fact that the Board would still retain
the ultimate authority for imposing discipline on licensees, and deciding on
licensure issues of new applicants.


                                    42
During the course of this sunset review, a representative of the Department of
Regulatory Agencies (DORA) attended numerous Board meetings, and the
Board held many disciplinary and licensing hearings at those meetings.

At every one of these hearings, the Assistant Attorney General (AAG) who
normally advises the Board on legal matters represented the state at the
hearing before the Board. While this is not unusual, what is unusual is the
absence of conflicts counsel. Conflicts counsel is simply another AAG who
assumes the role of advisor to the Board. This is necessary because of the
inherent conflict that arises when the Board’s customary counsel is
prosecuting a case before the body that that AAG normally advises.

In such a case, conflicts counsel provides legal advise to the Board during the
course of the hearing. Such advice may be substantive or procedural.
Regardless of the type of advice given, it is essential to the due process rights
of the licensee, that is the respondent in such a hearing, that the individual
prosecuting the case against the licensee not be providing legal advice to the
adjudicatory body.

In a proper hearing, then, the Board’s customary AAG plays the role of
prosecutor by representing the state (the AID), the licensee and the licensee’s
counsel play the role of defendant, the Board plays the role of adjudicator and
conflicts counsel provides legal advice to the Board. The roles of the AAGs,
the Board and the AID are separate, clear and distinct.

However, based on interviews conducted by a representative of DORA with
various industry and Board members, and based upon this representative’s
own observations, conflicts counsel has generally not been present at Board
hearings. From December 2005 through April 2006, conflicts counsel from the
Attorney General’s Office attended only two meetings. This created situations
where the Board had to rule on complicated legal objections and issues
without the benefit of independent legal counsel.

Some Board members do not appear to have a clear understanding of the
legal role of the Board or related Colorado laws. For example, Board members
have indicated that they do not understand when and how to declare and enter
into an executive session, or when and what to do if a conflict develops during
a session. Board members also unknowingly ask witnesses or respondents
inappropriate questions. In at least one instance, a salesman who was initially
denied a license for failure to include his past criminal convictions on his
application for licensure was asked if he had children, and if he supported
those children. The applicant answered affirmatively to both questions and
was granted a license. Although this applicant may have been granted a
license regardless of this query, the inference was that licensure was, at least
partly, granted based on factors outside of the stated licensure criteria.




                                    43
Indeed, the reason for conflicts counsel became apparent as a result of these
observations. During the course of several hearings, Board members, who,
with one exception are lay people, occasionally inquired of the Board’s AAG,
who was prosecuting the case, and AID’s staff, who was sitting at the same
table as the AAG, numerous legal questions. In general, these questions
pertained to legal options available to the Board, procedural issues, and the
legal consequences of various possible actions.

These types of behaviors and actions are unacceptable for a state board. The
due process rights of the licensee involved are potentially compromised when
the agency seeking to deny, revoke or otherwise discipline the licensee tells
the adjudicator what to do. This does not constitute a fair hearing for due
process purposes.

Additionally, it is unfair and unrealistic of the state to expect lay people, such
as the Board members, to possess the knowledge and expertise to hold a
legally sufficient hearing. Rulings pertaining to the examination of witnesses,
discovery and other legal motions can be complicated even for well-versed
lawyers and jurists.

While it is true that most policy autonomous boards and commissions in state
government have the authority to hold hearings or to refer such hearings to an
ALJ, the vast majority of those bodies refer the hearings to an ALJ because of
the reasons cited herein.

Therefore, the Board should refer all hearings pertaining to licensing matters to
a hearing officer or to an ALJ. Under such a system, the prosecuting AAG
would represent the AID before the ALJ, and the ALJ makes and issues
findings of fact, conclusions of law and recommended disciplinary sanctions. If
either the AID or the licensee disagreed with the ALJ’s decision, either party
could file exceptions with the Board within the timeframes outlined in the
Administrative Procedure Act. The Board could then uphold or alter the ALJ’s
decision, thus rendering a final agency action. If neither party filed exceptions,
the ALJ’s decision would become the final agency action by operation of law at
the end of the specified time period. The final agency action could then be
appealed to the Colorado Court of Appeals.

This process is more professional than the process currently utilized by the
Board, and is entirely in line with other programs in state government.

Since the Board has the authority to hold hearings, and since the Board’s
hearings have raised serious concerns regarding due process, the Board
should refer all licensure and disciplinary hearings to ALJs or hearing officers.




                                    44
Another benefit of using ALJs and hearing officers is that the Board would
have more time to consider important policy and regulatory matters since it
would not spend most of the meetings listening to witness testimony in
hearings. In fiscal year 05-06, the Board remained in the Board hearing room
in the course of a regularly scheduled hearing until 3:00 a.m., deliberating a
case whose testimony ended shortly before midnight. Several months later,
the Board deliberated the facts of a case until after 10:00 p.m. This is
obviously not a proper utilization of time and resources. One problem with the
Board acting as adjudicator is that some cases, by necessity, get continued
due to time constraints or witness schedules. However, because of
considerations relating to quorum requirements and attendance continuity,
continuing cases during the testimony portion could lead to undesirable
allegations of due process violations, as individual Board members might have
missed various portions of the hearing that contained important testimony.
When Board members miss a portion of a hearing, they must either recuse
themselves from the proceeding, or spend an unreasonable amount of time
becoming familiar with the facts of the case, which could lead to an allegation
of a violation of due process.

Board meetings are impacted by the attendance of Board members. A majority
of the members is necessary to constitute a quorum. Although no Board
meetings were cancelled during the past two years as a result of lack of a
quorum, one lengthy hearing was potentially compromised when only five
Board members attended, and one member indicated that a conflict existed
after the hearing closed. The best attendance records for the past three years
have been by the public members of the Board. The worst attendance record
has been by the new motor vehicle dealer members, and one new motor
vehicle dealer missed seven of 17 meetings in fiscal year 05-06.

Review of Board Actions

The Board has the statutory authority to investigate complaints through the
Executive Director of the Department of Revenue, order an administrative
hearing on the showing of probable cause, summarily issue cease and desist
orders, conduct hearings, and issue fines. The Board also has the duty to
promulgate guidelines in the form of rules and regulations to ensure that
administrative penalties are equitably assessed and commensurate with the
seriousness of the violation pursuant to section 12-6-104(3)(n), C.R.S.




                                   45
Over the past five years the Board has taken approximately 810 disciplinary
actions. A sampling of these disciplinary actions reveals that the Board has
not developed rules, regulations or guidelines to ensure that licensing criteria
and administrative penalties are equitably assessed. As set forth in the cases
below, the Board has been inconsistent in ruling on the disposition of cases.

      Case 1: New vehicle dealer added dealer and handling costs to the
      advertised price of a vehicle, violated advertising rules, and defrauded a
      retail buyer. The dealer was ordered to return the dealer and handling
      costs, and fined $1,000 with a one-day license suspension. However,
      $750 and the suspension were held in abeyance for a three-month
      probationary period.

      Case 2: New vehicle dealer entered into a buyer’s contract and failed to
      pay the $22,000 and $26,000 contract amounts. The dealer was fined
      $20,000 with a three-month suspension. However, $19,500 and the
      suspension were held in abeyance for a three-month probationary
      period.

      Case 3: New vehicle dealer sold a used vehicle with 600 miles as a new
      vehicle, thus defrauding the buyer. The dealer was fined $5,000 with no
      issuance of reprimand. However, $4,000 was held in abeyance for a 60-
      day probationary period.

      Case 4: New vehicle dealer was found guilty of 16 counts of failing to
      properly advertise. The dealer was fined $22,000 with a one-day
      suspension. However, $16,500 was held in abeyance for a six-month
      probationary period.

      Case 5: Used vehicle dealer failed to pay for six vehicles and failed to
      disclose a salvage vehicle. The dealer’s license was revoked and fined
      $50,000, with $45,000 held in abeyance if restitution was made to
      sellers.

      Case 6: Used vehicle dealer failed to deliver title on seven vehicles. The
      dealer’s license was revoked and the dealer was fined $80,000.

      Case 7: Used vehicle dealer was found guilty of 20 counts of failure to
      deliver title and 52 counts of non-sufficient funds. The dealer’s license
      was revoked and the dealer was fined $720,000 after the company had
      declared bankruptcy.

      Case 8: Used vehicle dealer - was found guilty of two counts of failure
      to deliver title, one count of failure to pay for a vehicle, and one count of
      failure to perform a contract. The dealer’s license was revoked and the
      dealer was fined $90,000.



                                     46
      Case 9: New vehicle dealer failed to disclose a salvaged vehicle, thus
      defrauding the buyer. The dealer was fined $15,000. However, $14,550
      was held in abeyance for a six-month probationary period.

      Case 10: New vehicle dealer was found guilty of four counts of failure to
      pay and deliver title. The dealer was fined $40,000. However, $38,000
      was held in abeyance for a one-year probationary period.

Based on the above representative cases, it is arguable that the Board is not
disposing of cases equitably in all situations. Used vehicle dealers are more
likely to be subject to the maximum fine, with a small portion, if any of the fine
held in abeyance. In a majority of the cases with large fines, the used vehicle
dealers, if not already closed, are forced out of business by the amount of the
fines. The Board’s position has been that heavy fines are meant to keep
problematic dealers out of the business.

In comparison, new vehicle dealers face high fines; however, a majority of the
fine is held in abeyance for a short time period. In comparison, used motor
vehicle dealer’s who may have already gone out of business tend to be subject
to license revocation and a hefty fine that the Board is likely to never recover.
The utilization of impartial ALJ’s and hearing officers would, at the least,
ensure that disciplinary actions are fair and unbiased.

In summary, Board benefits for using ALJ’s and hearing officers include a
reduction in legal conflicts, consistency of decisions, fewer appeals, and
appropriate utilization of allocated time parameters.



Recommendation 6 - Require that the Board prepare, and all licensed
dealers in Colorado include in the sales contract packet, a brochure
providing consumers with information on how to contact the Board,
and the extent of the Board’s authority.

Board members, AID staff, and industry representatives frequently commented
that many consumers do not even know that the Board exists. Most individuals
contacted for this review also expressed a belief that a public, educated on
motor vehicle sales issues, would have fewer complaints about the motor
vehicle industry than the Board is now experiencing.

The AID has developed several brochures to educate consumers about issues
such as what to look for when buying a car and how to file a complaint.
However, the distribution of these brochures is inadequate and some of the
information is outdated. There is no active program in place to make consumer
information widely available to the active consumer or the general public.




                                    47
Since the first point of contact for a retail motor vehicle consumer is a
dealership, it is logical to provide information at that point. General information
on the Board, motor vehicle dealer obligations, and how to access the
complaint process would go a long way in educating the public at the most
opportune time, before the purchase is complete. The same educational
materials should be available to the public at the county clerk (when renewing
plates), and various driver’s license offices statewide.


Recommendation 7 – Authorize the Board to deactivate a dealer
license by mail, if a licensee fails to maintain a required bond.

Currently, licensees whose surety bond has lapsed or is cancelled must
proceed through the Board’s disciplinary process. This is an expensive and
time-consuming use of Board resources. Since maintaining a statutorily
required surety bond is a requirement of licensure, the appropriate sanction is
the suspension of the license until such time as the bond is reinstated or
renewed. The license suspension in such circumstances is the only way to
financially protect motor vehicle purchasers.

This recommendation is to allow the Board to immediately and administratively
suspend the license of a licensee until the required bond is back in effect. No
motor vehicle sales would be allowed to occur during the suspension period.


Recommendation 8 – Repeal the requirement that dealers and
salespersons pass the current mastery exams as a condition of licensure.

The current mastery examinations (Salespersons Mastery Examination and
Dealer and Wholesaler Mastery Examination) consist of 41 multiple-choice
and 10 fill-in-the-blank questions. The exams are open book exams.
Nonetheless, the procedure allows the examination administrator46 to provide
the correct answers to the applicant in the event that the applicant is unable to
correctly answer the question. Consequently, the pass rate is 100 percent.
This procedure makes the exams fundamentally meaningless. The established
licensure criteria does not require that an applicant have any education or
experience in the industry as a prerequisite for licensure. The 100 percent
passing score generates a false sense of security.




46
     The examination administrator is usually a designated employee of the hiring dealership.


                                                 48
One factor for requiring this type of examination is to ensure that the applicant
has acquired the knowledge necessary to comply with state laws and
regulations. This testing process is intended to heighten the applicant’s
abilities to provide quality services to the public. These examinations do not
require that an applicant study written material, such as Board and industry
rules and regulations, in order to pass the exam with the required 100 percent
score. The general retention process to obtain and remember knowledge
relating to the appropriate motor vehicle laws and regulations requires a
degree of study and memorization, which is not necessary for these open-
book examinations. This is especially evident in light of the authority of the
examination administrator or AID employee to provide the correct answers to
the applicant.



Recommendation 9 – Modify the statutory requirements of a licensed
wholesale motor vehicle auction dealer to permit a licensee to provide
auction sevices of government owned vehicles to the public.

In 1997, the federal government awarded a Colorado-licensed wholesale
motor vehicle auction dealer with its contract to sell federal General Services
Administration used vehicles at auction. The contract requires that the vehicles
be offered for auction sale to the public. In Colorado, wholesale motor vehicle
auction dealers may not sell vehicles to the public.

To facilitate this contractual agreement, the Colorado dealer obtained a used
motor vehicle dealer license from the Board in addition to its wholesale motor
vehicle auction dealer license. However, Colorado does not allow a licensee to
maintain two separate licenses at the same location. If the wholesale motor
vehicle auction dealer cannot fulfill the obligations set forth in the contract,
because of this restriction, the federal government would have no alternative
but to transfer the contract to an auctioneer in another state, thereby depriving
Colorado of the associated tax revenue.




                                    49
The statutory modification is recommended to allow a wholesale motor vehicle
auction dealer to sell only government-owned vehicles to the general public
separate and distinct from the regular auction sale to dealers and wholesalers.
The statutes should be amended as follows:

      Section 12-6-102(17.5) C.R.S.

      Wholesale motor vehicle auction dealer means any person or firm
      that provides auction services solely in wholesale transactions in
      which the purchasers are motor vehicle dealers licensed by this
      state or any other jurisdiction, except that such license shall
      also permit a licensee to engage in the activities of an auction
      service solely in connection with the sale of government-
      owned vehicles to consumers at a time that is different from
      and does not conflict with the wholesale motor vehicle
      auction dealer’s customary wholesale motor vehicle auction.

      Classes of Licenses, section 12-6-108(1)(h)(I), C.R.S.

      Wholesale motor vehicle auction dealer’s license shall permit a
      licensee to engage in the activities of a wholesale motor vehicle
      auction dealer if the licensee provides auction services solely in
      connection with wholesale transactions in which the purchasers
      are motor vehicle dealers licensed by this state or any other
      jurisdiction, except that such license shall also permit a
      licensee to engage in the activities of an auction service
      solely in connection with the sale of government-owned
      vehicles to consumers at a time that is different from and
      does not conflict with the wholesale motor vehicle auction
      dealer’s customary wholesale motor vehicle auction. A
      wholesale motor vehicle auction dealer shall abide by all laws,
      rules, and regulations of the state of Colorado.



Recommendation 10 – The AID and the Board should develop and
utilize a viable and consistent set of compliance and disciplinary
standards by January 1, 2008.

Some industry representatives and Board members interviewed for this report
indicated that AID investigators occasionally intimidate licensees into resolving
disputes, and further suggest that investigators exceed their authority. Some
Board members feel investigators do not provide them with all the information
necessary about licensees to facilitate effective regulation of the industry.
Some investigators interviewed for this report believe the Board does not
support their regulatory efforts.




                                    50
The Board is required by section 12-6-104(3)(n), C.R.S., to

      promulgate guidelines in the form of rules and regulations to
      ensure that administrative penalties are equitably assessed and
      commensurate with the seriousness of the violation.

The Board may not have had sufficient time to adequately address this
mandate since so much of the Board’s time is spent in the hearing process.
Individual Board members have indicated that they would be more than willing
to tackle the “big issues” if they had sufficient time.

Compliance with this recommendation should be accomplished no later than
January 1, 2008. The guidelines developed as a result of this recommendation
should be reviewed and evaluated at least every five years after their drafting
and acceptance.



Recommendation 11 – Clarify section 12-6-104(3)(a), C.R.S., which
inadvertently authorizes the Board to repeal reasonable rules and
regulations.

A primary function of the Board, as delineated in section 12-6-104(3)(a),
C.R.S., setting forth the Board’s powers and duties, is:

      To promulgate, amend, and repeal reasonable rules and
      regulations relating to those functions the [B]oard is mandated
      to carry out pursuant to this [P]art 1, including the
      administration, enforcement, issuance, and denial of licenses to
      motor vehicle dealers, motor vehicle salespeople, used motor
      vehicle dealers, wholesale motor vehicle auction dealers, and
      wholesalers, and the laws of the [S]tate of [C]olorado as it
      deems necessary.

Although the Board has the authority to promulgate, amend or repeal rules and
regulations, this statutory reference suggests that the Board’s powers include
repealing reasonable rules. However, this recommendation does not seek to
prevent the Board from amending or repealing rules and regulations, rather it
seeks to clarify that the Board is not expected or required to repeal reasonable
rules and regulations. Consequently, this provision should be rephrased to
clarify this apparent misstatement.




                                   51
Administrative Recommendation 1 – Maintain computerized and
accurate records of all Board actions, licensing and bond activity,
statistics, and other information and data.

Sunset criteria direct that the sunset review evaluate complaint, investigation,
and disciplinary procedures to determine if the public is adequately protected
by the regulatory scheme and if complaint disposition and final agency actions
are self-serving to the profession. This is an important area of evaluation
because the Board is dominated by industry representatives and regulatory
programs are often "captured" by the industry in such scenarios. When a
regulatory program is captured by the industry that it is supposed to regulate,
the public suffers because the government offers little or no recourse when
statutes and regulations are violated. In some cases, competition can be
stifled as the industry-driven regulatory authority uses the police power of the
state to distort the market.

This sunset review of the Board cannot opine with reasonable surety on the
Board's performance relative to the criteria mentioned above because of
insufficient recordkeeping by the AID. During the course of this review, the AID
was unable to provide accurate, consistent, and comprehensive data reflecting
basic program measurements such as number of complaints, final
dispositions, grounds for complaints and so forth. Numerous members of the
AID’s staff, including senior management, were dispatched to accumulate
requested data manually by accessing hard copies of data through different
sources. It appears that the data retrieval system, and not the AID staff, may
have resulted in the inconsistency of the data provided.

As an example of the insufficient or inconsistent data supplied to DORA by the
AID, the following two charts are presented below. This data was submitted to
DORA by AID in response to requests for information and data relating to the
Board’s disciplinary actions. Chart 7, which appears on page 30 of this report
and is recreated here, was submitted by AID on July 28, 2006, after a lengthy
search, by a team of AID staff members, of hard copies of Board and AID
data.

                                         Chart 7
                                   Disciplinary Actions

  Fiscal      Number of
                               Suspend Revoke Probation Fine Other Fine $ Collected
   Year        Actions
  01-02          200                  8       23          20      12   15    $45,100
  02-03          144                  6       12          33       7   24   $137,952
  03-04          212                 14       21          64      16   11    $15,100
  04-05            67                 0        9          18      26    8    $38,641
  05-06          187                 13       12          17      11   12    $53,100
Compiled by the Department of Revenue’s Auto Industry Division.




                                            52
Due to the fact that the number of Board actions did not equal the total number
of specific actions (revocation, suspension, etc.), DORA requested an
explanation as to the inconsistencies of the submitted data. The response from
the AID was received by DORA on August 23, 2006, in the form of Chart 10.
Immediate concerns arose at DORA due to the apparent inconsistencies
between the numerical figures contained in the two sets of submitted data.

                                          Chart 10
                                    Disciplinary Actions

              Board
  Fiscal                Probationary                                 Admin.
              Action                 Denials Revocations Suspensions        Stipulation Other
   Year                   License                                     HR
              Totals
  03-04         176           29         91         9             15   22        7       3
  04-05         163           14        115         4             4    10        15      1
  05-06         178          10        149          0             11   2         3       3
Compiled by the Department of Revenue’s Auto Industry Division.

Such program measurements are fundamental to effective management of a
regulatory board and should be available in a standardized, easily retrievable
format. The data is subject to the state’s open records laws and it is therefore
imperative that the data be accurate and consistent.

This review recommends that the AID create and implement a data
management system to track all aspects of the complaint, bonding, licensure,
and disciplinary process.

In addition to this general administrative recommendation, it must be noted
that the Board, the AID, and their administrative staff have failed to keep
current and accurate documentation of the number, amount, and distribution of
both the dealer and salesperson bonds that were opened, accessed, and
distributed as a result of motor vehicle dealers’ fraudulent conduct. Section 12-
6-112.7, C.R.S., requires that all corporate surety companies providing a bond
for a Board licensee must provide this information to the Board within 30-days
of when the claim is honored. Again, this data should be maintained in an
appropriate storage facility thereby facilitating swift and accurate retrieval upon
demand.




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Appendix A – Sunset Statutory Evaluation Criteria

         (I)      Whether regulation by the agency is necessary to protect the public
                  health, safety and welfare; whether the conditions which led to the
                  initial regulation have changed; and whether other conditions have
                  arisen which would warrant more, less or the same degree of
                  regulation;

         (II)     If regulation is necessary, whether the existing statutes and
                  regulations establish the least restrictive form of regulation consistent
                  with the public interest, considering other available regulatory
                  mechanisms and whether agency rules enhance the public interest
                  and are within the scope of legislative intent;

         (III)    Whether the agency operates in the public interest and whether its
                  operation is impeded or enhanced by existing statutes, rules,
                  procedures and practices and any other circumstances, including
                  budgetary, resource and personnel matters;

         (IV)     Whether an analysis of agency operations indicates that the agency
                  performs its statutory duties efficiently and effectively;

         (V)      Whether the composition of the agency's board or commission
                  adequately represents the public interest and whether the agency
                  encourages public participation in its decisions rather than
                  participation only by the people it regulates;

         (VI)     The economic impact of regulation and, if national economic
                  information is not available, whether the agency stimulates or restricts
                  competition;

         (VII)    Whether complaint, investigation and disciplinary procedures
                  adequately protect the public and whether final dispositions of
                  complaints are in the public interest or self-serving to the profession;

         (VIII)   Whether the scope of practice of the regulated occupation contributes
                  to the optimum utilization of personnel and whether entry requirements
                  encourage affirmative action;

         (IX)     Whether administrative and statutory changes are necessary to
                  improve agency operations to enhance the public interest.




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Appendix B – Complaint Process




                                 55
Appendix C – Investigation Process




                                56
Appendix D – Adjudication Process




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